









«■ „ ft ^ A » o • 




^°''*. y 



vONOMICS FOR THE PEOPLE 



BEING PLAIN TALKS ON ECONOMICS 

ESPECIALLY FOR USE IN BUSINESS, IN SCHOOLS 

AND IN WOMEN'S READING CLASSES 



By R. R. BOWKER 



FIFTH EDI HON, REVISED 



NEW YORK 

HARPER & BROTHERS, FRANKLIN SQUARE 

T 902 






Copyright, 1886, 1892, 1896, by R. R. Bowker. 

All rights reserved. 



PREFATORY NOTE. 



This little book was written because there seemed 
to be need of it and I could get no one else to under: 
take it. It grew out of my summary of Economics, 
" Of Work and Wealth," which had developed from a 
chapter in a book yet uncompleted, on " The Arts of 
Life." It is an endeavor to set forth the principles 
of Economics so as to make them plain and inter- 
esting to all readers, illustrating them from American 
facts, so that at the end of the book the reader will 
have a fair knowledge of the economic history and 
condition of our own country. I may add that it is the 
work of a business man, drawn largely from business 
experience. I shall be obliged to any reader who will 
send me, in care of the publishers (providing that reply 
is not usually expected), criticisms, suggestions, or in- 
quiries that may enable me to make the book more 
useful should the demand for it justify new editions. I 
shall be especially glad to know what parts prove to be 
hard to understand. I am chiefly indebted, for literary 
material, to the works of Adam Smith, Mill, F. A. Walk- 



iv PREFATORY NOTE, 

er, Cossa, Perry, Ely (" Socialism "), and Weeks (" Labor 
Differences "), and, for friendly revision of statements 
or figures, to Messrs. D. A. Wells, Hadley, Atkinson, 
Shearman, and Henry George. I inscribe this little 
book to the Society for Political Education, in the cause 
of which it is written. 

R. R. BOWKER. 
New York, March, 1886. 



It has been gratifying that this book, which was adopt- 
ed for use in the Chautauqua reading -courses and in 
many schools, has been there and elsewhere of sufficient 
service to authorize successive editions, of which the 
present is the fifth. In this edition earlier figures are 
replaced with those of the 1890 census and of later sta- 
tistical reports, except in cases where no figures on the 
special subject were available later than those given. I 
am indebted especially to Edward Atkinson for bringing 
to present date his useful calculations. Again I thank 
the friendly critics and correspondents who have aided 

me with suggestions. 

R. R. B. 

New York, October, 1896. 



CONTENTS. 



CHAP. PAGB 

I. A Common-sense Study for Everybody i 

II. Of Earning a Living, and Using Leisure 7 

III. Some Mistakes about Econo?nics 15 

IV. Who share in Producing, and what Becomes 

of the Product .- 22 

V. How Value is Produced 28 

VI. What Price Means 37 

VII. The Laws of Price 43 

VIII. Markets, and the ''Market Price'' 52 

IX. About Competition 59 

X. Foreign Trade and the Balance of Trade 68 

XI. The Nature and Use of Money 76 

XII. Gold and Silver as Standard Money 82 

XIII. United States Money 89 

XIV. Paper as Money 9^ 

XV. Banks and Banking 107 

XVI. Land and its Features 116 

XVII. Of Rent, and the Possibilities of its Abolition. 129 

XVIII. Capital and Interest i39 

XIX. Of Labor, and the Division of Labor 150 



vi CONTENTS. 

CMAP. PAGB 

XX. The Wages Question 159 

XXI. The Rate of Wages 167 

XXII. The Captain of Industry : the Direction of 

Labor 177 

XXIII. The Relation of Employer and Employed.... 184 

XXIV. Of Co-operation 197 

XXV. Socialism and Communism 207 

XXVI. Taxation and National Debt 214 

XXVII. The Using of Wealth— Consumption 229 

XXVIII. The Early History and Literature of Eco- 
nomics 239 

XXIX. The Modern History and Literature of Eco^' 

nomics 249 

XXX. '' The End of the Whole Matter" 258 

A Reading List of Books on Economics 271 

Index 275 



ECONOMICS FOR THE PEOPLE. 



I. 

A COMMON-SENSE STUDY FOR EVERYBODY. 

When I was a boy I liked to buy and sell, with 
pins as " make-believe " money. Then I began to 
collect stamps. I had a friend whose father used 
to trade with South America and had stacks of 
musty old letters with the rare "big number" 
Brazil stamps. Of course he wanted only one of 
a kind for his collection, and was glad to trade off 
others for some of my European stamps. I lived 
in New York, and there I could get for the big 
Brazils more stamps than I gave, or could sell 
them to the dealers for money. Presently I hit 
on a plan the dealers had not then thought of. I 
bought small pieces of English and French gold, 
and sent them in letters to postmasters in the cot 



2 ECONOMICS FOR THE PEOPLE. 

onies, asking them to send me the money's worth 
in unused small stamps. Some of them I never 
heard from, but the others sent me enough to pay 
all the losses and a profit besides when I sold my 
stock to the dealers. Then I opened correspond- 
ence with a Liverpool stamp -dealer and one in 
Hamburg, buying United States stamps to send 
them. I made quite a little money, which I found 
I could put in the savings-bank so as to get inter- 
est, and I got a collection worth a hundred dol- 
lars, besides learning from the postage-stamps, as 
any thinking boy does, a good deal of geography 
and history. 

All this was ** doing business," just as men do 
it. My friend and I each got what we wanted, 
and each of us gained by the exchange. This is 
what any two men do in every " business transac- 
tion," else they would not take the trouble to do 
business. One or both of them may make a mis- 
take and get less than he bargained for, or find 
the thing worth less than he thought, but nei- 
ther trades unless he expects to gain by it ; no 
law in our day compels any man to sell or buy un- 
less he wishes. First, I " swapped " or bartered, 
as savages do before they learn to use money; 



^^ 



A COMMON-SENSE STUDY FOR EVERYBODY. 3 

later on I bought and sold for money ; then I 
bought English and French money to do foreign 
business ; and what I made I put into a savings- 
bank at interest. My profit became the capital 
which I used to buy other stamps, from which I 
made more profit. When we think about real 
business, we find that almost all of it is quite like 
these transactions. The desire of every man to 
get more is at the bottom of it all, and all that 
one reads in the newspapers about capital and in- 
terest, value and price, banks and panics, can be 
thought out till they are seen to be just like my 
boy business. ^%. 

Economics is the science which deals with 
these things. There have been a great many 
definitions of it — the science of production, the 
science of wealth, the science of exchange, the sci- 
ence of gain. All these definitions come to much 
the same thing, for Economics tells how wealth is 
produced by exchange of one thing for another, in 
which each man gains. At the very beginning, a 
man who digs in the earth exchanges his work for 
the product he gets out of the ground, and as 
soon as he can save some of this product wealth 
begins. So we may also say that Economics is 



4 ECONOMICS FOR THE PEOPLE. 

the science of work and wealth ; but whatever we 
call it, and however we define it, this study is that 
which tells how and why business is done, how and 
why men trade. For every act of business is, un- 
derneath, a trade between two men, exchanging 
goods or services so as to gain. 

The name Economics (oeco-nemics) comes from 
two Greek words, oikia^ the household estate, and 
nemein, to manage, and means household manage- 
ment, or the management of what one owns. The 
name Political Economy (from the Greek polls, 
city, which was to the Greeks the same as state or 
nation) is also used, because the wealth of nations 
is only the wealth the people own, put together, 
and economic laws are the same for the few or for 
the many. Some States, indeed, as Massachusetts, 
are called in their legal papers a Commonwealth. 
Each home or household earns so much and spends 
so much : the difference is the wealth of that fam- 
ily; and the wealth of all together makes the Com- 
monwealth. 

Economics has been called " the dismal science," 
because some people think it is uninteresting and 
hard to understand. But it is really a simple mat- 
ter, and when one understands it fairly, a great 



A COMMON-SENSE STUDY FOR EVERYBODY. 5 

many perplexing things become plain, and the 
study is very interesting. It is only common-sense 
applied to business. The best way to keep the 
study easy and interesting is to take up the real 
facts that one reads of in the newspapers, and ask 
one's self how the economic law one is studying 
bears on them. I know one teacher who reads his 
class a business article out of the daily paper, and 
then talks about that. I know another who tells 
his boys to ask him questions about every-day af- 
fairs, and if their questions show honest thinking 
he marks them as though they had recited well. 
Or he puts the names of books or newspaper arti- 
cles on the black-board, and after his class has had 
time to read them, makes them think out whether 
the writers are right or wrong. This thinking for 
himself is what every reader should try to do. 

Every boy who likes to *' swap," or who means 
some day to earn his own living, every young man 
starting in business, every girl who wants to un- 
derstand what she hears men talk about or what 
she reads in the papers, every woman who goes 
shopping or who keeps house, ought to know some- 
thing about Economics. For there is scarcely any 
one, the richest or the poorest, old or young, who 



6 ECONOMICS FOR THE PEOPLE, 

is not affected by economic laws. Away out on 
a Western farm, for instance, the farmer's wife 
can't get the new dress she needs. Why? Be- 
cause the corn her husband raised last year brings 
so little money that he must hold it over for better 
prices, or wait till he can feed it out and so sell it 
in the form of cattle or hogs. Why? Because 
railroad freights are so high, and prices in Liver- 
pool, and therefore in Chicago, are so low. And 
freights and prices go up and down according to 
those laws of trade which Economics teaches. The 
whole world in these days is a great House-that- 
Jack-built, the big things and the little things all 
depending on each other. And sometimes, if a 
farmer, for instance, knows these laws of trade, he 
can guard against mistakes, just as by looking at 
a weather-glass he can save his hay before a storm. 
Sometimes, too, he can help set wrong things right, 
by thinking them out and talking them over and 
casting his vote, perhaps, for a Congressman who 
thinks the right way. 



II. 

OF EARNING A LIVING AND USING LEISURE. 

The first thing every one has to do, when his 
time comes, is to earn a living. The second is to 
earn leisure. This is another reason why young 
people, in particular, should understand Econom- 
ics. They ought to desire to earn their living in 
the best way — that is to say, in the most honest 
and surest way. And they ought also to look for- 
ward to using leisure, when they have earned it, 
so as to get the most good out of life. 

Now this applies not only to boys as they be- 
come men, but to girls as they become women. 
There are a great many ways of earning a living, 
with the head as well as with the hands, and by 
making it easy for other people to work, as well 
as by what is commonly called working. Many a 
girl has fairly earned her living by making her 
father cheerful for the next day's business per- 



8 ECONOMICS FOR THE PEOPLE. 

plexities, and many a woman by helping to make 
others happy, or by bringing up children who will 
in their turn do the world good service. 

For the key to all honest earning of a living is 
to do service. And there are many kinds of serv- 
ice. The first kind is that of the men who add 
value to materials by work and are direct pro- 
ducers. First of all comes the work of those who 
get from the earth, by hard labor, what Nature has 
to give us — the farmers, the miners, the fishermen. 
On them everybody else depends, and they are 
the great body of the people. The census of 1890 
showed that there were then 62,600,000 people in 
the United States, of whom 22,700,000 were work- 
ers; and of these two-fifths (8,560,000) were farm- 
ers or farm-hands and the like. The 387,000 
miners and quarrymen and 60,000 fishermen should 
be added to them. Next comes the work of the 
manufacturers and their workmen, who make the 
products of the farm and of the mine more valu- 
able by working them into other forms, of whom 
there were over 5,090,000, or above half as many 
as farmers. The work of the wagoners, the rail- 
road men, and the sailors, who carry crops and 
manufactures to the place where they are needed, 



EARNING A LIVING AND USING LEISURE, g 

and that of the traders and bankers, who keep 
them in store till the time when they are wanted 
by buyers, come next, and in "trade and trans- 
portation " there were 3,300,000 engaged in 1890, 
including 500,000 railroad employes and 55,000 
sailors. Besides these, 1,900,000 "laborers" were 
reported by the census, who probably do this di- 
rect work. 

The second kind of service is that of the people 
who work indirectly by helping others, who are 
only mdirect producers. There were over 3,400,000 
of these in 1890, 1,400,000 of them domestic ser- 
vants. The 104,000 doctors, for instance, keep us 
well, so that we may do our work ; 89,000 lawyers 
see that justice is done, and as many clergymen 
preach morality, without which business could not 
be carried on ; 79,000 officials and employes are 
employed to administer government, besides 27,000 
soldiers and sailors to protect us; 341,000 teachers 
train children to be serviceable men. In this class, 
also, come the great body of women, many of whom 
are not classed as workers by the census, and cannot 
be taken account of in Economics, because they 
do not exchange their labor, though they do a real 
service to their fellow-beings and to their country. 



lO ECONOMICS FOR THE PEOPLE, 

A third kind of service is that done by artists, 
musicians, and others who serve us by ministering 
to our pleasures, though they increase production, 
if at all, only by putting us in better temper for 
work. But this also is real service, and because 
few people have the gifts to serve us in this way, 
we are willing to pay often very high prices to 
those who can. As a matter of fact, many call- 
ings, as that of a writer, combine two or more of 
these kinds of service. 

There are also classes of men who do not earn 
a living, but simply prey upon the other people. 
Among these are the thieves and other criminals, 
who are supported in jails at the cost of the work- 
ing people who pay the taxes, unless they are 
made to do wholesome work inside the jails ; and 
the paupers and beggars who can't or won't work ; 
and the gamblers of various kinds, who get money, 
not by earning it, but by betting it away from oth- 
er people's pockets into their own. Much of the 
" business " called '' speculation " is of this sort ; 
men simply bet on what the price of gold, or 
stocks, or wheat, or oil will be a few days hence, 
without in any way adding value to the goods, 
just as a man in a gambling saloon bets on what 



EARNING A LIVING AND USING LEISURE. 1 1 

cards or dice will turn up next. A man in a west- 
ern city was arrested for gambling with a " specu- 
lating machine " which showed at the turn of a 
wheel the names of various stocks, or of wheat, 
pork, oil, etc., joined hap-hazard with figures of 
prices on a great indicator -board such as stock- 
brokers have in their offices, so that people might 
bet on what would come next. But many men 
" on the street " gamble in exactly the same way, 
though the law cannot reach them. Thus more 
cotton or oil has been '' sold " in New York in a 
single day than the whole stock in existence, and 
perhaps not a bale or barrel has been touched at 
all. 

There is much honest and useful business done 
by bankers and brokers " on Wall Street," but it 
is not of this sort. We hear a great deal about 
great fortunes made "on Wall Street" in this way 
by men who are mere speculators or " railroad 
wreckers," but such fortunes are not honestly and 
honorably made, and usually are soon lost again. 
These men do not earn money, they only "pluck" 
others. No one ought to desire to make fortunes 
by gambling of any sort. Nor ought any one to 
wish to spend money without earning it, as by 



12 ECONOMICS FOR THE PEOPLE. 

holding any government office which is a sinecure, 
and drawing pay without doing work. And every 
man who inherits money ought to feel that he 
cannot rightly spend it without also working him- 
self. 

These are distinctions nowadays very much con- 
fused, but which ought to be clear to every boy 
or man making his choice in life, and to every 
girl and woman who knows business men. For if 
public opinion, especially that of women, called 
such " speculation " by its right name of gambling, 
and despised it accordingly, the whole country and 
each person in it would be better off. 

After a man is earning his daily bread by work, 
he tries next to earn more than he needs day by 
day, and this saving or wealth gives him the right 
to leisure. This is the test of success. A country 
is prosperous when its people, by working a few 
hours in the day, can have the other hours " for 
themselves,'' and when, also, the men can earn so 
much that the women and children are spared 
hard work. The women can then use their time 
to make their homes what they should be, and 
the children can get the schooling which our free 
schools offer them. But this leisure is not good. 



EARNING A LIVING AND USING LEISURE. 1 3 

and may be bad, if it is not well used — if a people 
use their savings and their leisure to get drunk or 
to put bad into life instead of getting good out of 
it. It is for this reason that education is impor- 
tant, so that the man who has earned leisure may- 
be fitted to enjoy books and pictures and music 
and nature and travel and all the higher things at 
their best. A man who has studied Economics 
and put it to good use is better fitted to enjoy 
both his honest and well-chosen work and his well- 
earned and delight - giving leisure, and this is a 
great gain. 

On the other hand, a man who is ignorant loses. 
Ignorance is costly. A farmer, for instance, re- 
members that last year potatoes were very high, 
so this year he plants all the land he can in pota- 
toes. Very likely the price is low and he loses 
money. If he had studied Economics, he might 
have learned that after a very high price one year 
a great many people rush in to plant that particu- 
lar thing, and the price falls below the average. 
So, too, an ignorant man who is smart enough to 
earn money and leisure doesn't know what to do 
with them. An ignorant servant-girl, not knowing 
how to read or write, who had been married by a 



14 ECONOMICS FOR THE PEOPLE. 

rich man, had to stay in bed a good part of the 
day to "kill time." This is an extreme case, but 
there are many men and women who do not enjoy 
life half as much as they might if they had edu- 
cated themselves at the beginning so as to make 
the most of their time. 



III. 

SOME MISTAKES ABOUT ECONOMICS. 

Some people say that it is not worth while to 
study Economics because it is not exact in its con- 
clusions. That is, it cannot tell a business man 
that this month will be a good month in which to 
sell, and next month a good month in which to buy, 
or that he can be sure to make money by doing so- 
and-so. In fact. Economics is not an exact science, 
as arithmetic is, in which we know surely that twice 
two is four and can't be anything else. But much 
of our knowledge that is of most practical use comes 
from studies which are not exact. A farmer might 
as well say that he wants to know nothing about 
the weather, because he cannot be sure that the 
last week in April will be rainy and the first week 
in July hot. If he could have a weather science 
that would tell him the heat and rain and sunshine 
for each day in the year, then indeed he could 



1 6 ECONOMICS FOR THE PEOPLE, 

plant with some certainty about his crops. Yet, 
as a matter of fact, he seeks to know all he can, 
however imperfectly, about the weather. He re- 
lies surely on the general facts that winter is cold 
and summer hot, that spring is seed-time and au- 
tumn the time of harvest. Then he seeks to learn 
from his weather-wise neighbors the signs of the 
clouds and the sun, the birds and the flowers, the 
barometer and the weather-glass. Finally, out of 
this study of the weather there comes a science, and 
the Weather Bureau warns him of the coming of a 
great storm or of a season of drought, which it fore- 
tells from the telegraphic reports or from the spots 
on the sun. It cannot tell him that at three o'clock 
Thursday there will be a shower heavy enough to 
spoil his hay, but its warning is nevertheless a real 
help. Millions of dollars have been saved to the 
farmers of this country by the predictions of the 
Signal Service. It is the same with Economics, 
and with many other studies. It has its founda- 
tion facts, its general laws, its specific applications. 
It is a great help, but it does not claim to tell the 
day and the hour at which prices will go up or 
go down. 

Others say that it is not worth while to study 



SOME MISTAKES ABOUT ECONOMICS. I J 

Economics because economists themselves differ, 
and " when doctors disagree, who shall decide ?'* 
Yet it is true in medicine, which is also an inexact 
science, that while two doctors may disagree as to 
the exact kind of sickness of a patient, and the 
specific remedies that will make him well, and even 
quarrel desperately over " old school " and " new 
school," yet doctors do agree as to the general laws 
of health and of healing, and, despite all their mis- 
takes, do help people to get well. So, also, minis- 
ters of different denominations disagree as to doc- 
trines, but they agree as to Christianity and its 
power over life. The same is true of economists : 
all recognize the great truths, almost all recognize 
the same general laws ; there is still much division 
on specific applications. 

But it is also true that schools which differ in 
methods arrive at the same results. The English or 
Manchester school, as it is called, taking up many 
of the ideas of the earlier French economists, and 
including the great Scotch and English economists 
from Adam Smith to Richard Cobden, thought 
most about the great laws which must be, and so 
they are called the a priori or scientific economists. 
They considered Economics almost an exact sci- 

2 



1 8 ECONOMICS FOR THE PEOPLE. 

ence, and showed that because of such-and-such 
laws such-and-such things must come to pass. The 
German or *' national" school, to which many of 
the later English and American economists belong, 
seek to find out what has been the historical expe- 
rience of nations as to economic matters, and so 
they are called the empirical or historical econo- 
mists. They consider that even great laws act 
somewhat differently as applied to nations in dif- 
ferent stages of growth, and claim that we must 
look not only at laws, but at historical events and 
the circumstances of individual peoples. In their 
view Economics is a science only as physiology is 
a science: in both small circumstances influence, 
and great events modify, great laws. Christianity, 
which is so great an event in history that we date 
everything from the birth of Christ, introduced 
certain springs of action, like the "golden rule," 
which have had the greatest possible influence 
upon the action of economic laws. 

But the scientific and the historical schools of 
economists, after all, reach much the same conclu- 
sions and confirm each other's results. When the 
French merchant Legendre was asked by Colbert, 
minister of Louis XIV., what the Government 



SOME MISTAKES ABOUT ECONOMICS. 19 

should do for the merchant, he answered ''Laissez 
faire " — "■ Let us be," " Do nothing." This phrase 
became the cry of the Manchester economists, who 
said that Government should do nothing to inter- 
fere with the natural course of business. The his- 
torical school studied the same subject as a matter 
of experience, and most economists come to the 
similar conclusion that a people gets on best when 
its Government does only those things which or- 
dinary business organization cannot do as well. 
But there is great difference of opinion as to the 
application of this conclusion — for instance, as to 
whether Government can best manage the tele- 
graph and railroads. 

Still others say that it is not worth while to study 
Economics, because it is largely a quarrel about 
words. This means that economists have gener- 
ally given much space to explaining what certain 
words, such as '' wealth," " property," " value," and 
the like, do mean, and what they don't mean. When 
"Alice in Wonderland" meets Humpty Dumpty, 
he tells her that he makes words mean what he 
wants them to — otherwise, what is the use of hav- 
ing them? Perhaps Humpty Dumpty was mak- 
ing fun of economists. But a great many words 



20 ECONOMICS FOR THE PEOPLE. 

are carelessly used, and mean somewhat different 
things to different people, and it is said that half 
the quarrels in the world have come from misun- 
derstandings about words. Therefore it is of first 
importance that a writer should make clear how he 
means to use a word, and that his readers should 
keep that meaning clearly in mind. But it is fool- 
ish to waste time in quarrelling with another be- 
cause he uses a word whose meaning is not ab- 
solutely settled, in another sense than that you 
would give to it. As the science of Economics 
progresses, the scientific meaning of its words be- 
comes more and more settled. 

An example is the word wealthy which expresses 
the object of Economics. It may be said that 
there are two kinds of wealth — possible wealth and 
actual wealth, or wealth potential and wealth pro- 
duced. Every young man who has health, ability, 
and skill, has, we often say, the best capital for 
life ; and so a country which has many such men 
may be said to have great wealth. So it is said 
that every able-bodied man among the 788,000 im- 
migrants who came to the United States in 1882, or 
the 279,000 in 1895, was worth $1000 to the country. 
A wise statesman ought to do all he can to promote 



SOME MISTAKES ABOUT ECONOMICS. 21 

good habits of living among the people, and to 
encourage immigration, for the more workers the 
more wealth. Adam Smith used the word wealth 
in this broad sense. But this kind of wealth 
cannot be exchanged, and Economics cannot deal 
with it. Therefore, when modern economists 
speak of wealth, they mean usually wealth pro- 
duced, — the fruits of work, not the possibilities of 
it. And most of them do not include in wealth 
either natural resources, as land, which cannot be 
increased or decreased, or mere evidences of debt, 
as promises-to-pay, which, if burned up, would be 
no loss of real value. Wealth in this sense is 
product, and not the possibility or the evidence 
of product. 



IV. 

WHO SHARE IN PRODUCING, AND WHAT BECOMES 
OF THE PRODUCT. 

Nothing is produced except from the land or 
upon the land (the water and the air being in- 
cluded in the economic sense of the word land). 
The owner of Land which is farmed, or on which 
a factory is built, sells the use of this land and gets 
rent. Nothing is produced except by Work, and 
the man who sells the service of his body and its 
skill gets wages. But without tools, or machinery, 
or material to work on, a worker has a poor chance ; 
therefore, to work at the best advantage, Capital is 
required, whether this capital is in the shape of a 
loan in money or goods, or of the use of a factory. 
The capitalist lending the money, or its equivalent, 
gets interest. Further, there may be a man who 
can also help production a great deal — that is, who 
can get more things produced by the same outlay 
of land, or work, or capital, because a fertile brain 



WHO SHARE IN PRODUCING. 23 

makes him good at organizing or directing. This 
director of industry, as we may call him (the 
French use the word entrepreneur, which the 
Scotch economists translate "undertaker"), wants 
to be paid for this service of his Brains, and he 
is usually the business-man who takes the risk and 
is paid hy profit. 

Thus two elements must enter into production, 
Land and Labor, paid for by rent and wages, and 
two more are found of value in increasing product, 
Capital and Brains, paid for by interest and profit. 
To put it plainly — 

Land-owner Use Land >n Rent 

^ Laborer ^ Service .« Body -g Wages 

^ Capitalist % Use o Capital •- Interest 

Director Service Brains ^ Profit 

Of course one man may combine all of these, or 
any three, or any two. A farmer may own his 
land, and do the whole or a part of the work him- 
self, and buy his house and tools and stock from 
his own savings, and direct everything according 
to the judgment of his own brains. But in this 
case, if he is a successful farmer, his product must 
bring enough to cover the rent he would pay for 



24 ECONOMICS FOR THE PEOPLE. 

the land if he did not own it, and day's wages for 
himself, and the interest he might get for his sav- 
ings if they were not invested about his farm, be- 
sides the profit his good management, if he is a 
good farmer, gives him. If a man does not get this 
much out of his business it does not pay. Some 
years prices may be up, and some years down, but 
if in the long run he fails to get this much return, 
he ought to know the reason why. It may be 
poor land, or bad management, or heavy freights, 
or too heavy taxes, but, in any case, he should 
look up the economic principles of his business 
and learn which. 

Sometimes a man can wisely combine all these 
four elements in himself, and sometimes he can- 
not. It is sometimes cheaper to rent land than to 
own it, though here a great many side considera- 
tions enter in, and a country is better off when its 
people own and cultivate their own farms. Usually 
a man of brains can better afford to hire men and 
direct them, than to work all the time with his 
own hands, while men with less brains are better 
off, and not worse off, because he finds work for 
them which pays him a profit. The same kind of 
mistake is made by employers who try to "save 



WHO SHARE IN PRODUCING. 2$ 

wages " by employing too few men, and by em- 
ployes who try to get along without allowing for 
the usefulness and pay of brains. This has been 
the ruin of many " co-operative " enterprises, in 
which each man wanted to share absolutely alike, 
and would neither submit to nor pay for the di- 
recting man who alone could make a profit, and 
who could always get pay for his brains some- 
where else. Capitalists are often willing, for in- 
stance, to pay this directing ability a large fixed 
salary in place of profit, and to take the risk for 
the sake of the profit remaining after the salary of 
such a man is paid. 

For each of these elements of production must 
have its share of the product. Production is, of 
course, the first factor in Economics ; without it 
there is nothing to exchange, or to share, or to 
use. But production only makes the wealth, or 
the no-wealth, of the miser who hoards. A man's 
work, applied to land or materials, produces his 
keep and a surplus, and this surplus— indeed all 
the product if a man is not producing the kind of 
things he needs for himself — must be exchanged. 
When, by the division of labor, one man produces 
more of one kind of thing than he wants for him- 



26 ECONOMICS FOR THE PEOPLE. 

self, and another man more of another kind than 
he wants, then Exchange begins, wealth is realized, 
and the whole machinery of Economics is set in 
motion. Exchange is, in fact, so close to produc- 
tion that some writers make both one division of 
Economics. The results of production and ex- 
change must now be shared among the elements 
which contribute to those results, in the form of 
rent, wages, interest, and profit. This comes un- 
der Distribution^ which division of Economics cov- 
ers some of the most pressing questions of our 
day. What share the land-owner, the laborer, the 
capitalist shall get, is a question at the bottom of 
the social order, and one of the most satisfactory 
things in Economics is its teaching that the work- 
ing population, who are the body of the people, 
are surely and steadily getting in wages a larger 
and larger share of the total product. Finally, 
product is of no good unless it is finally used or 
consumed. Consumption^ the final purpose of pro- 
duction, is also the last division of Economics. 
This is one of the least studied but most impor- 
tant departments of economic investigation, since 
the balance-sheet of prosperity for every nation 
and the whole world, as well as for each man, 



WirO SHARE IN PRODUCING. 2J 

depends at last upon whether we are ** getting 
ahead" by using what we consume so as to pro- 
duce again to good advantage, or are ''running 
behind " by using up product faster than it is re- 
supplied. The wise farmer must have an eye to 
his seed ; so the present must put aside part of 
the harvest of the past, that there may be har- 
vests also in the future. 



V. 

HOW VALUE IS PRODUCED. 

The key to all business is that men want things 
and are willing to work for them. When they get 
by work more than they want of one particular 
thing, they desire to trade with some one who has 
something else which they want and who wants 
what they have, just as a boy who has gathered 
a lot of chestnuts is glad to give half of them for 
a jack-knife, if he can find a boy who has one to 
swap. Now a man may easily have more than he 
wants of any one thing, but he never gets more 
than he wants of everything ; that is, no man ever 
complained of being too rich, nor can the whole 
world be too rich. General prosperity consists in 
so directing production that men can buy what 
they want, and so adjusting distribution that men 
who want, and who work to supply their want, 
can have power to buy. 



I/O IV VALUE IS PRODUCED. 29 

The first question then is, what men want. The 
answer to this varies with the people of whom we 
are talking. Adam and Eve at first wanted noth- 
ing. The savage wants little — and has a hard time 
getting that. The civilized man wants a great 
many things of many different kinds. An Ameri- 
can, accustomed to comforts and " modern im- 
provements,'' wants a greater variety of things 
than men of most other nations. A common 
country store, for instance, on its hardware shelves 
alone, offers at least five hundred different kinds 
or sizes of things ; and in New York City probably 
at least a million different articles are kept in stock 
in the different kinds of stores. A man's wants 
depend upon the standard of life of the people 
about him, and upon how he himself lives. 

Of course each man seeks to get what he wants 
as easily as possible. He tries to get the most 
that he can, and pay for it the least that he can, 
whether he pays in money or with work. If Farm- 
er Jones wants to sell his potatoes, he tries to find 
the man who will buy dearest, so that he may get 
the most he can for his summer's work; if he 
wants to buy potatoes to plant, he tries to find 
the man who will sell cheapest. This is the great 



30 ECONOMICS FOR THE PEOPLE. 

fact at the bottom of all trade. It is the law of self- 
interest. 

For a long time people took it for granted that 
one man's gain must be another's loss, that each 
man's self-interest was against that of every other 
man, and that each nation's self-interest was against 
that of every other nation. This would make trade 
always a kind of war. But when Adam Smith, 
in 1776, the year of the Declaration of Inde- 
pendence, published " The Wealth of Nations," 
the greatest of all the books on Economics, he 
made it very clear that it was not true that one 
man loses as another gains. This is true in mere 
speculation, but not in real trade. If Farmer 
Jones grows more potatoes than he can use, and 
wants money, but Doctor Smith wants potatoes 
more than the money for which he can buy them, 
both gain by the exchange. Trade is a voluntary 
act, and thrives by peace and not by war; for 
peace lets people do as they choose, and war 
makes them do as the war -makers compel them. 
Therefore men nowadays speak of " enlightened 
self-interest," and see that in free exchange both 
sides gain. 

Anything that can be exchanged or must be 



HOW VALUE IS PRODUCED. 3 1 

bought is said to have value, that is, power- in-ex- 
change. Those things which everybody can get 
for nothing, as air and daylight, though they are 
the most useful things in the world, are not spoken 
of as valuable. Other things may be very hurtful, 
as poison or bad liquor, but they are nevertheless 
said to have value, because people may want them 
and be willing to pay for them. The difference 
between value and utility depends on whether peo- 
ple must pay for things or can use them without 
paying for them. Even air and light may become 
valuable ; in a great public hall full of people, each 
of whom breathes many cubic feet an hour, air is 
pumped in at great cost ; and in the evening we 
are glad enough to pay for light, whether for our 
work or for our pleasure. In these days we can 
not afford to save money by going to bed early, as 
people used to do in old times. But nobody will 
give anything for air out-of-doors, or for sunlight 
in daytime, though their utility is above every- 
thing ; for any one may have all he can use with- 
out paying. 

Even the animals work for their living, applying 
labor to get what nature has to give them. Those 
who live on flesh hunt their prey, and even the 



32 ECOJVOMICS FOR THE PEOPLE. 

monkeys, who feed on nuts, must apply labor to 
pick them off the trees or from the ground. More- 
over, the squirrels store up food for a future time ; 
the father-birds carry it to the place where their 
young need it; the honey-bees rework it into 
honey. But man is the only being that barters or 
exchanges, and so has to do with value or power- 
in-exchange. There are three ways of adding value 
to the materials which by labor man obtains from 
the earth, corresponding to the work of the squir- 
rels, the birds, and the bees. We must have what 
we want, when, where, and how we want it. Ice, 
for instance, is not wanted in winter, but in sum- 
mer. It is not wanted up in the Arctic regions, 
but in our homes. It is not wanted in the shape 
of icebergs, but in convenient pieces that can be 
put into ice-boxes. In winter, or up by the North 
Pole, or in icebergs, it is of no value, we would 
say. The three kinds of added value, then, are 
time -value, got by keeping, as when ice is kept 
from winter to summer, which is storage ; place- 
value, got by moving, as when ice is taken from 
Maine to Louisiana, which is transportation or 
commerce ; and form-value, got by reworking, as 
when ice is chopped into convenient blocks or 



B^OH^ VALUE IS PRODUCED. 33 

produced from water by artificial means, which is 
manufacture. 

If we think over the work of those who are di- 
rectly producers, we shall find that it adds some 
one of these kinds of value to what they work 
at, and sometimes all three. A farmer deals with 
form-value : he plants the seed and cares for the 
young plant, so that Nature, with her machinery 
of sun and air and rain, may transmute it into 
rich harvests of golden grain or rosy fruit ; or 
he feeds and fosters the young of his stock un- 
til the hay or corn, by this same mechanism of 
Nature, becomes flesh for food or muscle for work. 
The wagoners and railroad-men and sailors help to 
add place-value by transporting the crops to mar- 
ket. The merchant and banker help to add time- 
value by enabling goods to be kept till they are 
more in demand. The machinist who keeps a 
machine in order helps the machine to add form- 
value to its product ; and so we may say, too, that 
the doctor and the household servant help to keep 
the human machinery, that is, our bodies, in good 
working order, and the lawyers and clergymen 
and Government officers keep in order the social 
machinery on which so much depends. But, again, 



34 ECONOMICS FOR THE PEOPLE. 

it is the farmer, the hunter, the miner, who do the 
foundation-work, and supply the raw materials for 
manufacture, as each manufacturing process in 
turn produces the material for the manufacture 
next above it. 

Value may be taken away, as well as added, in 
each of these three ways. Grain may rot, or it 
may be sent by mistake of judgment where it is 
not wanted, or it may be kept over till the next 
harvest, when prices are down. Thus a man may 
keep the very same things from year to year, and 
become poorer and poorer. A man who was rich 
with a storehouse full of hops when they were a 
dollar a pound, is poor when they fall to twenty 
cents. 

There is another kind of increase of value, 
however, which is not produced by work, but by 
scarcity. The picture of a great painter, or the 
autograph of a great man, now dead, or the few 
existing postage-stamps of a past government, or 
the few remaining bottles of the wine of a certain 
year, have this scarcity -value from the fact that 
the thing cannot be reproduced, no matter how 
much and how many more people want it. No 
demand can increase its supply. And if some of 



HOW VALUE IS PRODUCED. 35 

these few things are destroyed, the others increase 
greatly in power -of- exchange, just as, when fire 
burns or war destroys great quantities of food, the 
power-of-exchange of what is left is much greater. 
This scarcity -value, or, as it is sometimes called, 
" monopoly- value," is one element of value in 
land. 

Now there are a great many things, as land 
and houses and railroads, which can change own- 
ers, but cannot change place. For such things the 
evidence of ownership is usually in written papers 
of some kind — the deed of land or of a house, or 
the " shares " of a railroad or manufactory — which 
are passed from the seller to the buyer. These 
papers are not in themselves wealth, but only evi- 
dence of the ownership of wealth. If an owner 
does not want to sell his land or house, or a com- 
pany its railroad or manufactory, or a man his 
stock of goods, they sometimes issue another kind 
of paper promising to pay so much money at a 
certain time or else transfer the goods : this is 
called a mortgage. Or sometimes a man issues 
a promise to pay money at a future time, which 
is called a note. " Paper-money " is such prom- 
ises-to-pay issued by a government. These are 



36 ECONOMICS FOR THE PEOPLE. 

not wealth, for they could all be burned up with- 
out reducing the real wealth of the country. But 
in speaking of how much a man is worth, we often 
speak of them as a part of his property, and " prop- 
erty" in this sense includes (i) natural elements, 
as land, (2) true wealth, which can be destroyed, 
and (3) evidences of wealth or of debt. 

A great mistake has often been made in taxa- 
tion by overlooking the fact that there cannot be 
two values in one thing — that evidences of debt 
are not wealth. If a house is worth $io,ocx) and 
is mortgaged for $5000, the total value is still but 
$10,000, and only this much can rightly be taxed. 
This end can be reached by not taxing the mort- 
gage at all, or by taxing the mortgage for $5000 
and the house for the unmortgaged remainder of 
$5000. 



VI. 
WHAT PRICE MEANS. 

In my boy days our business transactions were 
carried on with pins ; instead of swapping two pa- 
per whirligigs for a stick of licorice, we put the 
price of a whirligig at five pins and of the licorice 
at ten pins. Price is value expressed by some one 
thing, and in grown-up business that one thing is 
usually money. When men say that the price of 
wheat is a dollar, they mean that this is the value 
or power-in-exchange of the bushel of wheat meas- 
ured in money. It would be a great trouble to 
reckon that the value of a bushel of wheat is half 
a hat or twelve pounds of sugar. It is much easier 
to make a price in dollars and cents. In fact, a 
price-list of a hundred items in money would re- 
quire 4950 items if each article were quoted in 
terms of every other. 

It is very necessary to get a clear idea of what 



38 ECONOMICS FOR THE PEOPLE. 

price really means, and of what money really is, 
before going very far in Economics. A great many 
serious mistakes are made in business and in poli- 
tics, because people are so apt to forget that as " it 
takes two to make a bargain," so it takes two val- 
ues to make a price — the value of the thing priced, 
and of the thing in which it is quoted, that is, the 
value of the money. Wheat may be at one time 
the most plentiful, at another time the scarcest 
thing in the community ; so that if hats remain of 
the same value, a hat may exchange one year for 
three bushels and another year for only one bushel 
of wheat. But if the value of hats varied in the 
mean time the same way with wheat, a hat would 
be worth one bushel of wheat all along ; or if hats 
varied in the opposite direction, and became scarce 
while wheat became plenty, a hat might be worth 
six bushels of wheat. If values on both sides 
stayed always the same, prices would never change. 
As a matter of fact, prices are changing all the 
time ; sometimes things are " high " and some- 
times they are " low." 

Wheat was quoted in the New York market as 
high as $3.45 a bushel (in 1866), and as low as 61 
cents (in 1894). Raw sugar reached, in 1864, as 



WHA T PRICE MEANS. 39 

high as 25 cents a pound, but refined sugar could 
be bought in 1 895 for 3f cents. Wool reached $1.10 
a pound in 1864, was as low as 25 cents in 1866, 
reached 6^ cents in 1872, was down to 20 cents in 
1878, was up to 50 cents in 1879, ^^^ down again 
to 21 cents in 1881. These are, of course, extremes 
of prices, and for the war years the prices are in 
currency. Hops sold in 1865 as low as 10 and as 
high as 65 cents a pound, in 1868 as low as 5 cents 
and as high as 55 cents, in 1870 as low as 3 cents, 
in 1882 as low as 17 cents and as high as $1.13. 

The value of all these things depended upon sup- 
ply and demand. Value, or power- in -exchange, 
always depends upon the relation of supply and 
demand in the market quoted, under free exchange. 
Of course if a soldier in a raid, or a government in 
peace-times, forces me to sell a hat for half a dol- 
lar in poor money, or for whatever they choose to 
give, or if I myself choose to sell a hat to a friend 
for half its value — in other words, to make him a 
present of the other half — the transaction is not 
exchange and affords no measure of value. Hops, 
for instance, is a very variable crop, grown in but 
few spots, and dependent almost entirely on the 
one use of beer-making. In 1870 the crop had 



40 ECONOMICS FOR THE PEOPLE. 

been very plentiful in Europe as well as here, and 
the supply was vastly above any present demand. 
The price went down to 3 cents. In 1882 the for- 
eign crop had failed, and our farmers got as high 
as $1.13. This is a crop whose success depends 
so much on the season that no human foresight 
can prophesy next year's values ; the farmers who 
held over their stock, and those who rushed into 
the hop business, were the next year well-nigh 
ruined. Wool is a steadier crop, but the passage 
of a high tariff on wool in 1866 induced so many 
farmers to go into sheep-raising that the supply 
greatly exceeded the demand: in 1868, 4,000,000 
sheep were killed in this country for mutton, and 
the number of sheep in Ohio was reduced 43 per 
cent, in three years. Again the price went up ; 
then the demand for wool fell off by the stagna- 
tion of manufactures, and the price went down. 
Here better foresight would have saved much loss. 
The variation in price in these cases was a real 
variation in the value of the individual thing. 

When, however, prices in general go up or go 
down, it may mean a variation in the supply or 
demand of the things sold, as when general dis- 
tress reduces the buying of a whole community; 



WHAT PRICE MEANS. 4 1 

or it may mean a change in the power-in-exchange 
of that with which we buy, that is, money. In 
July, 1864, what we called a dollar in this country 
would buy only 35 hundredths of a gold dollar, for 
the premium on gold made a gold dollar worth 
2.85 paper dollars. Our dollar did not really rep- 
resent a dollar's worth of coin again till December, 
1878. A bushel of wheat priced at $2.85 currency 
when gold was highest, would have been priced in 
gold at $1.00 only; it seemed "high," but was 
really ** low." An English penny a thousand years 
ago meant i-240th of a real pound of silver, or 22^^ 
grains: it decreased, until since 1600 it has meant 
less than 8 grains. Again : the same coin or quan- 
tity of gold or silver had less power-in-exchange 
after the exploration of America began to increase 
the supply of the precious metals in Europe than 
it had before, although one of the reasons for the 
use of them as money is because they vary in real 
value less than anything else. Therefore, when 
we are reading in history, or in accounts of foreign 
countries, or in newspaper quotations, about prices 
and rates of wages, we do not get at the real price 
and real wage until we have learned what the 
"currency " is, and how much metal-value and pur- 



42 ECONOMICS FOR THE PEOPLE. 

chasing power it stands for. The reaK test of 
wages, for instance, is the purchasing power of a 
day's work at the time and at the place mentioned. 
When, in the New Testament, " they received ev- 
ery man a penny," they received about i6 cents 
of our money, which was then a fair day's wage. 

We have to remember then, about prices, that 
as goods vary in quality and value, so money va- 
ries in kind and in power-of-exchange. There is 
" good " money and there is " bad " money — money 
worth its face-value in metal, and so-called paper- 
money or promises-to-pay, which may come to be 
worth nothing. A dollar a day in good money 
may be better wages than three dollars a day in 
bad, for price is not named in the same kind of 
dollars both times. 



VIL 

THE LAWS OF PRICE, 

*' It takes two to make a bargain." In making 
prices there are always two sides — on the one 
hand the seller, representing the producer, and 
offering the supply ; on the other hand the buy- 
er, representing the consumer, and furnishing the 
demand. 

When a man makes a thing " to order," the de- 
mand precedes the supply, and the two exactly 
balance. The producer gets the cost of produc- 
tion, including the fair return for his own labor 
and brains. Thus, if a man who usually earns 
two dollars a day should go into the woods, pick 
up dry branches, and make a rustic chair, taking 
half a day's time for the whole job, he would ex- 
pect the price of a dollar for the chair. Or, if he 
paid another man half a dollar to get him the 
wood (part of which might be paid to the owner 



44 ECONOMICS FOR THE PEOPLE. \ 

of the land on which the wood was grown), and 
used a quarter of a day of his own labor, he would i 
still expect a dollar. If everything were made j 
"to order," or if men actually worked, under the 
same conditions, so as to produce exactly what 
was wanted, in the quantity wanted, in the place i 
and at the time it was wanted, then supply and | 
demand would balance, there would be neither I 
scarcity nor waste, and the actual price would be \ 
the cost of production. But man is not a perfect 
being, and things do not come out, in economics 
any more than anywhere else, just exactly even. \ 
If our friend made his rustic chair in the ordinary j 
course of trade, and then found that nobody want- j 
ed the chair or had the wherewithal to buy it, he 
would get nothing; or he might force a sale at 
fifty cents ; or, if two men each wanted a chair ; 
right away, and there was only this one to be had, 
he might get two dollars instead of one. It is the ' 
relation of supply and demand that determines I 
price. 

Nevertheless, the basis of price is the cost of 
production. Prices cannot, in the long run, fall 
below that, for then producers would stop pro- 
ducing. Merchants who claim to sell everything 



THE LA WS OF PRICE, 45 

** below cost " are cheating either their creditors 
or the public. Yet some men or some farms pro- 
duce cheaper than others can. Which cost of pro- 
duction is in this case the basis of price ? 

Mr. Smith is not willing to pay Farmer White 
more for potatoes than the price at which he could 
buy them from Farmer Gray, even though Farmer 
White's land is poor and he has had to work twice 
as hard as the other farmer ; nor will Farmer Gray 
be willing to take a lower price than Farmer White 
can get because he raised the potatoes to better 
advantage. We must see how in this case the 
particular price is made. 

Farmer White, Farmer Gray, and Farmer Black 
all have potato patches. Farmer White's land is 
poor for potatoes, Farmer Gray's middling, and 
Farmer Black's best of all. Farmer White has 
therefore to put the most work in, and Farmer 
Black the least. Now, allowing for his land, and 
the seed, and the labor he hires, and his own work, 
it costs Farmer Black 35 cents a bushel for the 
potatoes he raises. Farmer Gray 40 cents, Farmer 
White 45 cents. If only as many potatoes are 
wanted as Farmer Black and Farmer Gray can 
raise, Farmer Gray must get his cost of produc- 



46 ECONOMICS FOR THE PEOPLE, 

tion, or 40 cents ; Farmer Black will want the 
same, though he gets five cents extra profit ; and 
Farmer White will say to himself that it is not 
worth while for him to raise potatoes at the dis- 
advantage of such a price, and he will turn his 
land to some other crop. But if the demand is 
greater than the two can supply. Farmer White 
must be called in ; and as it does not pay him to 
grow potatoes at less than 45 cents, he will get 
this price and so will the other two, though now 
Farmer Gray makes five cents and Farmer Black 
ten cents extra profit. 

This instance brings out one of the greatest 
general laws of economics — that price is based 
on the cost of production of that portion of the 
product produced at the greatest disadvantage at 
which it is worth while to produce. This price 
becomes the general price, and any man whose 
land or whose skill enables him to produce cheap- 
er, gets the benefit of the difference, as we have 
seen. This explains what seems to most people 
a slap at common -sense — when economists say 
that the amount of rent does not affect price^ a 
statement based on " Ricardo's law of rent." The 
reason is nevertheless simple : the price of pota- 



THE LAWS OF PRICE. 4;- 

toes is made by the poorest ground on which it 
pays to grow potatoes, and any land that grows 
more potatoes to the acre, or the same number 
with less labor, pays the difference to its owner in 
the shape of rent. It is " worth more." In like 
manner, if a smart farmer by good management 
can make the same kind of land grow more pota- 
toes than his neighbor, he does not pay more 
rent, but he gets the difference in profit for his 
skill. There is nothing more important than that 
this law should be generally and clearly under- 
stood. 

How important this law is .in the practical di- 
rection of affairs is shown in the case of the Span- 
ish treaty discussed in 1885. This proposed to 
let in sugar from Cuba without payment of duty, 
though the duty on sugar from non-Spanish coun- 
tries would still be if to 2J cents a pound and 25 
per cent, ad valorem. At first thought this seemed 
a good thing, as it was supposed that Americans 
might get their sugar nearly three cents a pound 
cheaper. But of the 2,754,000,000 pounds of for- 
eign sugar used in this country in a year, Cuba 
sent, in 1883-84, 1,191,000,000, Porto Rico 138,- 
000,000, and other Spanish possessions 295,000,000 



48 ECONOMICS FOR THE PEOPLE. 

pounds, and non- Spanish countries 1,130,000,000 
pounds. We could not buy all we wanted from 
Cuba, because not enough is grown there ; we 
should therefore have to buy from less -favored 
countries, whose sugar is imported under the dis- 
advantage of the tax, and the general price would 
still have to be high enough to cover the tax. 
The Cuban growers would get this general price ; 
it would be they, therefore, and not we Ameri- 
cans, who would profit to the extent of the duty ; 
unless, indeed — as happened in the case of the 
Hawaiian treaty — a particular set of Americans 
bought up the sugar plantations of Cuba on spec- 
ulation. Then the treaty would benefit not all 
Americans, but these few, until Cuba began to 
produce all the sugar we need, or the cost of pro- 
duction in other parts of the world was lowered 
in the competition, when the price would fall, and 
the speculators would lose in their turn. 

As price, from the side of the seller, is based 
upon the cost of production of the portion pro- 
duced at the greatest disadvantage at which it is 
worth while to produce, so price, from the side of 
the buyer, is limited by the desire for that portion 
it is least worth while to consume. If Dr. Smith 



THE LA WS OF PRICE. 49 

proposes to lay in ten barrels of potatoes, he will 
not pay Farmer White $5 for the five barrels he 
must have, and $1 for the five barrels he could get 
along without, but he pays for all at the lowest 
price at which it is worth while to buy any, and 
beyond which no more of this particular thing is 
useful to him at the price named. This " final 
utility" price, as economists call it, determines, 
from the buyer's side, the price of the commodity. 
The instances of Dr. Smith and the farmers show 
the great law that there can only be one price in a 
given market for a given thing — that is, for the 
same quantity and quality of an article selling un- 
der like conditions at a given place and time. A 
starving man pays no more for bread at the baker's 
than a man who does not care whether he eats an- 
other piece of bread or not. A family pays no 
more for its barrel of flour for bread because bread 
is a necessity and cake only a luxury, than for a 
like barrel of flour for cake. Farmer White gets 
no more and Farmer Black no less for the same 
grade of wheat because it costs one more than 
the other to raise it. And this one price is the 
cost of that portion of the supply produced at 
the greatest disadvantage at which it is worth 

4 



50 ECONOMICS FOR THE PEOPLE, 

while to produce the "final utility" portion of 
the demand. 

Price thus poises, like the pointer in the old- 
fashioned pair of scales, at the point where de- 
mand and supply counterbalance each other. The 
seller, who cannot replace his product by less la- 
bor, has no great desire to sell, and the buyer, to 
whom it is not useful at any higher price, is indif- 
ferent about buying ; their desires are balanced ; 
they trade on even terms. The limit on the one 
side is the cost of production at greatest disadvan- 
tage, below which producers will not continue to 
produce and the supply stops. The limit on the 
other side is the desire for the " final utility " por- 
tion, beyond which consumers will not buy and 
the demand ceases. The two are the same, be- 
cause producers will always sell as high as pos- 
sible and consumers will always buy as low as 
possible. There is a child's game in which the 
children say, " I want this thing twenty kisses." 
That is exactly what the potato -buyer says to 
himself: "I want these potatoes 40 cents; I do 
not want them 45 cents." But kisses are of un- 
limited supply, manufactured to order to meet 
the immediate demand. This is not so with po- 



THE LA WS OF PRICE. 5 1 

tatoes and most things. The normal price is based 
on the single consideration we have discussed 
above, just as the normal temperature of winter 
is based on the relative position of the sun and 
the earth. But as weather is a variation from nor- 
mal temperature, so market price is subject to a 
great many variations from normal price ^ as we 
have yet to see. 



VIII. 
MARKETS AND THE "MARKET PRICE." 

A. T. Stewart became a great merchant large- 
ly because he introduced into *' shopping " the true 
economic principles of price. He told his clerks 
to name only "one price/Vand this was always 
the lowest price he would take. This saved all the 
waste of time and trouble in the old-fashioned hag- 
gling, and each buyer paid the same price in cash 
for the same thing. This gave Mr. Stewart a great 
advantage over his rivals, who presently followed 
his example, until now in New York the " one- 
price " system is the rule. 

Nevertheless, it still remains true, as John Stuart 
Mill points out, that in the small transactions of 
retail buying the economic laws of price have least 
chance to act. A country village often has trade 
enough only for one store, so that there is no com- 
petition price at all, partly because buyers do not 



MARKETS AND THE ''MARKET PRICE:' 53 

know the " market price " at competing stores, 
partly because it costs them more to fetch their 
purchases from a distant place than to pay the 
price asked by the village store-keeper. In the 
first case the buyer suffers because of his igno- 
rance ; but in the second case the buyer has, after 
all, little cause to grumble, because it is evident 
that the store-keeper is doing him a service. When 
the village grows large enough to support two 
stores selling the same kind of goods, then compe- 
tition begins to act, and the price obeys more 
closely the general law. Even if there are two 
stores, the system of getting credit often ties a 
customer to one of them, and the store-keeper 
" puts on the price " without fear of losing him. 
Or it is a matter of fashion, or habit, to buy at 
one store rather than another. Above all, the 
retail buyer, who cannot be an expert judge of 
everything he buys, or cannot spare time to test 
everything, is willing to pay a ''good price" when 
he is sure of "• good value " — in other words, to pay 
a premium for honesty and good judgment on the 
part of the store-keeper. '' Retail buying and sell- 
ing," says Professor Cairnes, " is thus made to rest 
upon a moral rather than an economic basis." 



54 ECONOMICS FOR THE PEOPLE. 

But aside from this question of retail buying, 
there is in general a difference between normal or 
" ought to bring" price and market or actual price, 
A dealer often says, "- 1 ought to get a dollar for 
this, but I will let it go for ninety cents." If he 
is talking honestly, he means that the normal price^ 
the cost to him and his proper charges, would be a 
dollar, but the market price is only ninety cents — 
for if he could get somebody else to give him more 
than ninety cents, he would not sell at less to you. 

It is very seldom, in fact, that the market price 
is exactly the same as the normal price, although 
values inevitably tend to the cost of production. 
Moreover, the difference of time and other condi- 
tions between the making of an article and the 
selling of it, tends always to make a new normal 
price, based upon the cost of reproduction^ that is, 
of production now. It is always the present 
conditions of supply, the amount of labor by 
which an article can be reproduced or acquired 
now — as by new machinery replacing hand-labor — 
which gives the basis for its present power-in-ex- 
change. This power depends upon the actual re- 
lations of supply and demand — the amount of a 
given thing offered at the price and the amount 



MARKETS AND THE ''MARKET PRICED 55 

of it desired at that price. If the supply is short 
the price goes up, and the supply is then likely to 
be increased by increase of production, or by draw- 
ing from the stock or potential supply held in other 
markets, or withheld from market because the 
price was so low. A market^ in the sense in which 
economists use the word, includes those who stand 
ready in any one place or under like conditions to 
buy or sell to each other the same lines of goods. 
There is, for instance, one market, and market 
price, for wheat at a farmer's barn-door, another 
at the Western flour-mill, another at Chicago, an- 
other at New York among the great grain dealers, 
another among those who sell to grocers, another 
between grocers and their retail customers; finally 
there is the great world's market at Liverpool, 
where the wheat of America competes with that 
of India, and where the prices that are at the base 
of all other markets are made. Thus, if there is so 
much wheat from other countries that only $1.02 
a bushel can be had for American wheat in Europe, 
the price in New York is likely to be this, less cost 
of transportation across the ocean, handling and 
dealer's charges, or say 90 cents, while grocers in 
New York would have to pay say 93 cents, and 



56 ECONOMICS FOR THE PEOPLE. 

the purchaser of a single bushel 98 cents ; the price 
in Chicago, the New York price less the cost of 
getting it to the seaboard, say 80 cents ; the price 
at the mill or the train still less. Each of these is 
a separate market, between which the price varies 
according to the cost of transportation and other 
charges. If it should happen that scarcity in the 
Milwaukee market should lower the supply below 
the demand of the flour-mills there, prices might 
go up till it paid to increase the supply in Mil- 
waukee from the stock in the Chicago market. 

In all this series of prices the normal price should 
be the cost of producing the wheat plus the cost 
of handling and transporting to the country rail- 
way-station, to Chicago, to New York, to Liver- 
pool. The real or market price seems to be made 
the other way : the farmer gets the price at Liver- 
pool less the cost of transportation thither. Yet 
the contradiction is seeming rather than real, for 
when the price gets so low that it " does not pay " 
farmers to raise wheat, the acreage is reduced and 
wheat has to go up again. The farmer is some- 
times told that he ought to get a better price by 
encouraging a "home market," and not depend- 
ing on Liverpool prices. But " America feeds the 



MARKETS AND THE ''MARKET PRICED 57 

world." In the year 1891-2 we raised 611,000,000 
bushels of wheat, and of this exported 225,000,000 
bushels that we could not eat at home ; and if we 
undertook to *'get along without abroad," the 
glut would sink prices out of sight. 

The real difference between normal and market 
price comes from what may be called friction in 
Economics, the actual failing from the free condi- 
tions of production and competition presupposed 
in theoretical economics, (i) Men may already 
have produced in excess of current demand : a stock 
exists. If this suffers by keeping, as fresh fruit, 
the price falls almost without reference to the cost 
of producing. (2) It is not always possible for pro- 
duction to respond at once to an increased demand : 
a large " plant," as costly mills, or time, or a reor- 
ganization of industry may be necessary. Prices 
then rise. (3) The substitution of one article for 
another when prices are raised — as happened when 
coffee became so high during the war that rye, 
dandelion root, and such things ground together, 
were sold instead as "combination coffee" — checks 
the rise of prices beyond certain limits. (4) Cus- 
tom or habit influences price : it is customary to 
pay a penny to a boot-black in London, and five 



58 ECONOMICS FOR THE PEOPLE. 

cents in New York. (5) The coinage system affects 
price, particularly in small transactions : when, af- 
ter the war, the price of blacking boots was lower- 
ed, it went from the ten-cent price to the five-cent 
price ; all theatre and similar charges are at " even " 
rates ; the pay of " day's labor " usually rises or falls 
by quarter-dollars or dimes. (6) The " tone " of 
the market, the result of moral and intellectual fac- 
tors, dealing with the previous conditions, has per- 
haps the strongest influence of all on the market 
price at any given moment. The seller offers or 
withholds, the buyer purchases or declines, accord- 
ing to his judgment of present facts and future 
probabilities of prices. Thus a rumor on the street, 
a panic, become real factors in price. In stock 
speculation this cause alone leads to large percent- 
ages of variation in price, while the utility of the 
wealth represented remains closely the same. It 
is said that prices once went up '* a point " on the 
New York Stock Exchange just because Mr. Thom- 
as Hughes (';Tom Brown of Rugby"), who was 
visiting it as a looker-on, made a cheerful speech. 
All these causes really affect price, aside from any 
question of good or bad money, which nominally 
affects price more than all. 



IX. 

ABOUT COMPETITION. 

The man who makes two blades of grass grow 
where only one grew before is set down as a ben- 
efactor to the race. In like manner, he is a bene- 
factor who enables twice as much to be bought at 
the same outlay of work. Civilization is measured 
largely by the reduction of prices brought about 
by competition. That we buy better shoes at 
three dollars a pair than the last generation got 
for six, is one of many facts which are great mile- 
stones in human progress. 

Competition (from the Latin con, together, and 
petere, to seek) means the striving together of two 
or more rivals for the same end. The man who 
can do more or better work (or its equivalent, the 
same work for less money) gets the work to do ; 
the trader who can sell goods cheapest gets the 
business ; the improved method or machine su- 



6o ECONOMICS FOR THE PEOPLE. 

persedes the old. It is the natural way of choos- 
ing the most fit. Thus the " competitive exami- 
nation " for the Government service is the means 
of finding out which of several candidates can do 
the people's work best. Competition in Econom- 
ics is the same as the law of the " survival of the 
fittest," or *' natural selection," in nature. It is the 
natural order of affairs by which each man is re- 
quired to work at his best, and under which each 
man works to his best advantage. The man 
working at the best advantage produces at the 
least outlay of labor, and therefore at the least 
cost. Thus prices are reduced. When competi- 
tion is restricted, a man is prevented from doing 
what he can do best. Thus prices are raised. 
There is less work done, and nobody is better off. 
The poorer worker, who thinks he gains by re- 
stricting the smarter man from doing more than 
he himself could do, gets no more work, and no 
more money for his work, and finally pays more 
for what he buys. He simply brings the smarter 
man down to his level, instead of trying to be 
smarter himself. Competition has produced la- 
bor-saving machinery, and labor-saving machinery, 
after the unavoidable loss in changing, has reduced 



ABOUT COMPETITION. 6i 

prices and bettered the condition of laborers ev- 
ery time. Competition in trade has thrown out 
unnecessary middle -men, who were thus set at 
work at new production, and so also has reduced 
prices for the general benefit. 

For instance, in the poor part of a crowded city 
there are five groceries, paying five rentals and 
supporting five grocers' families. A new shop 
sells goods a cent a pound cheaper, runs three 
grocers out of business and hires the other two 
as clerks. The three, who had been competing 
with one another as much as they knew how, cry 
out against the evils of competition. But now all 
the poor people about save money, and after a 
time the three middle-men begin to earn their liv- 
ing at raising potatoes instead of handling them, 
and so help to make potatoes still cheaper. If 
the new grocer gets rich, it is by doing a service 
to the poor people about ; and if he puts up prices 
again, " competition " will bring a new rival for 
the trade. All this is what actually happens ; and 
though for the time it is hard on the men thrown 
out, they also come out right in the end. 

Yet it is often said, especially in " hard times," 
and by those thrown out of work, that if we could 



62 ECONOMICS FOR THE PEOPLE. 

only get rid of competition we would all be bet- 
ter off. That is a mistake : a few would be better 
off, because they would get greater profits or high- 
er earnings, but the many would be worse off, be- 
cause they would have to pay higher prices, that 
is, give more labor for what they buy. Competi- 
tion, by reducing profits and the return to capital, 
gives to the great body of wage-earners an increas- 
ing share of product ; this tendency would be 
checked, and labor would suffer most. But, also, 
we cannot " get rid of" competition, any more than 
we can get rid of the law of gravitation. All nat- 
ural laws have their ill side : gravitation, which 
keeps us firm on our feet so long as we are on 
solid ground, knocks us to pieces if we attempt 
to walk off a house-top or over the opening of a 
pit. It is not the law, but the attempt to ignore 
it, that gives us trouble. ** Hard times " are not 
the result of competition, but come rather, as we 
shall later see, from misdirected, production, une- 
qual distribution, and unproductive consumption. 
The principle of competition is abused when a 
merchant, or a " trust," or a railway, sells or car- 
ries below cost, to crush out a competitor — an 
" over -competition" which invites bankruptcy, 



ABOUT COMPETITION. 63 

when creditors or shareholders pay the loss, and 
reacts to bring about too high prices afterwards 
on other goods or rates. Such abuse has led to 
the popular feeling against trusts, and to the gov- 
ernmental regulation of railways. 

The action of the law of competition is limited, 
in respect to wages, by the willingness of the la^ 
borer to work for the compensation offered. If a 
number of workers agree that they are not willing 
to work below a given price, that price must be 
paid, or the work given up, unless other workers 
can be found willing to work for less. Thus the 
law of competition is met by the principle of asso- 
ciation. It then acts wholesomely to keep up the 
compensation of the laborer, just as gravitation 
acts to keep up a house built of stones put to- 
gether one on top of the other. This is the nat- 
ural offset to the endeavors of great employing 
powers to keep down the pay of the human ma- 
chine. Trades-unions have been one great means 
of accomplishing this end, and have thus support- 
ed the natural tendency of competition to give an 
increasing share to labor, against the efforts of the 
employing class to increase or keep up profit. 

If, however, such voluntary combinations, either 
of producers of goods or sellers of labor, go on to 



64 ECONOMICS FOR THE PEOPLE. 

restrict others from offering at a lower price, or to 
prevent the doing of work, such enforced restric- 
tion interferes with the rights of others, and does 
wrong. The artificial limitation of competition 
has almost always resulted badly. Combinations 
to prevent " under - selling " seldom work perma- 
nently, because they are devices to prevent smart 
men making " large sales and small profits," and 
are opposed to the natural order of affairs. On 
the other hand, when trades-unions undertake to 
prevent less skilled laborers from working for what 
they can get, they set up the same kind of combi- 
nation of the strong against the weak which they 
were organized to resist. Thus, in seeking to re- 
strict competition by equalizing the work of good 
and poor workmen, and to limit apprenticeship for 
the sake of keeping up the price of labor, trades^ 
unions do very serious harm on one side, offset- 
ting their great usefulness on the other. The 
clerk of the chief criminal court in New York has 
said that the great increase of young criminals in 
that city was due not so much to flashy literature, 
as is usually supposed, as to the restriction of em- 
ployment for youths by the refusal of the unions 
to permit more than so many apprentices to a shop. 
A most important natural limitation to competi- 



ABOUT COMPETITION. 6$ 

tion is in the fact pointed out by Professor Cairnes, 
that in the stratified condition of modern society, 
caused by division of labor, there are many " non- 
competing groups." The farmer, the mechanic, 
the merchant, the doctor, cannot turn advanta- 
geously to each other's work, and so do not under 
any usual conditions compete. This holds true, 
also, as Mr. Mill has pointed out in his theory of 
international trade, between men of different na- 
tions, separated by distance and other barriers, 
and by differences of race, of climate, and of other 
natural conditions, prevented thus from free move- 
ment and kept under differing conditions of work. 
As a result of the fact that competition between 
men of different nations is not direct and com- 
plete, we find that the effort required to obtain an 
imported article in an importing country is not 
measured by the labor required to produce it in 
the country of production, but by comparative 
costs in the two countries. Thus Buenos Ayres, 
with its great cattle-plains, used to sell our mer- 
chants hides, say at half the price at which we 
could produce a full supply for ourselves before 
the great cattle-plains of our Far West were used ; 
but the Lynn factories could make shoes at a 

5 



66 ECONOMICS FOR THE PEOPLE. 

quarter the labor at which the Buenos Ayres shoe- 
maker could make them. Thus our people, at the 
cost of half an hour's labor, could buy from the 
South American what would otherwise cost sev- 
eral hours' labor. Foreign trade gains us certain 
goods at much less cost of capital and labor than 
we could make them for ; while, as in all free ex- 
change, the foreigner also gains, because he gets 
more than he could make for himself. By getting 
from each country the goods it can produce best, 
just as a business man selects for a clerk the man 
with the best head, and for a porter the man with 
the strongest arms, we spend our money — that is, 
we exchange our own work — to the best possible 
advantage. 

The whole tendency of progress has been to 
break down barriers and make communication, 
that is trade, that is competition, more easy. For 
this we make roads, build bridges, tunnel mount- 
ains, dig canals, improve harbors, breed beasts of 
burden, invent machines of transportation, such as 
wagons, locomotives, and ships. We learn foreign 
languages and study the habits of other people 
with the same purpose in view. That social state 
is the most healthful which offers the widest eco- 



ABOUT COMPETITION. 67 

nomic freedom, or chance to compete, consistent 
with protecting the weak against the reckless 
strong. Years ago, however, nobody saw this, and 
even now many fail to recognize its truth. 

The statesmen of old Rome passed laws that 
gold and silver ought not to be exported — a sys- 
tem which Professor Perry calls the Bullion sys- 
tem. During the Middle Ages, and particularly 
among French statesmen, the Mercantile system 
developed, the purpose of which was " to sell to 
foreigners more of our productions than they will 
sell us of theirs ;" that is, to make exports greater 
than imports, getting the balance in gold and sil- 
ver. In 1667 the Protective system, of laying 
tariff taxes so as to keep out foreign goods and 
compel production at home, came into vogue with 
the French protective decree of that year ; and it 
was not until the eighteenth century that the 
Natural system of free exchange began to find 
strong advocates, of whom the greatest was Adam 
Smith. All earlier systems were attempts to reg- 
ulate prices and restrict competition, and were the 
forerunners of the protective policy which, despite 
the trend of America for freedom, has long ruled 
the United States. 



X. 

FOREIGN TRADE AND THE BALANCE OF TRADE. 

Two views of foreign trade join issue in Eco- 
nomics, under the names of " Protection " and 
" Free-trade." The protective system claims that 
by raising prices through a tariff, or series of taxes 
on foreign goods, a "home market" can be devel- 
oped and new industries created so as to increase 
production, profits, and wages. The free-trade sys- 
tem claims that " the world's market " is needed 
for the full development of production, that we 
cannot sell freely unless we are free to buy, that 
each man and each nation should do what he or 
it can do best, and that obstacles in the way of 
freedom of exchange misdirect production and de- 
crease wages. 

The tendency of progress has been to break 
down barriers between nations, and no people 
have done more than Americans in promoting 



FOREIGN TRADE.— BALANCE OF TRADE. 69 

freedom. The doctrine of *' Protection " has nev- 
ertheless continued the economic policy of the 
general Government, though freedom of trade ex- 
ists between the States, as guaranteed by the 
constitution. Its aim is to identify economic 
groups with political divisions, whether or not 
these correspond to race or geographical or oth- 
er real divisions, with the purpose of making each 
nation complete in itself and independent of all 
others by " diversifying industries," as it might be 
if isolated from other nations by war. 

The "diversifying of industry" usually means 
the promoting of manufacture in preference to 
agriculture, by admitting foreign goods only at 
the disadvantage of a high tax, which raises the 
price of the " protected " articles here, and per- 
mits a profit which will tempt Americans to make 
them. The most favorable illustration is the silk 
industry in America. The high duty on silk goods, 
as an article of luxury, during the war, and the ab- 
sence of duty on the material, gave a considerable 
margin of profit to the few silk factories then ex- 
isting, and two places. South Manchester, Conn., 
and Paterson, N. J., have been largely built up by 
the increase of silk manufacture since 1861. The 



70 ECONOMICS FOR THE PEOPLE 

industry in 1890 had 472 establishments, with $51,- 
000,000 capital, employing 50,913 hands, to whom 
it paid $19,680,318 wages, or $386 each, and pro- 
ducing $69,154,000 (net) worth of goods. In the 
fiscal year 1894-95 we imported $31,023,138 worth 
of silk goods, to which was added $14,739,550 du- 
ties (47-I per cent., the rate being 50 on silks and 
45 on silk-mixtures), making the cost $45,762,688. 
This shows " Protection " at its best, for American 
silks are honestly made, their prices have been re- 
duced, and South Manchester is one of the most 
creditable American towns, where the hands are 
well housed, well fed, and well cared for. As silk 
is a luxury, no great hardship is worked by an in- 
creased price, and the Government gets revenues 
only exceeded by those from wool, cotton, sugar, 
and tobacco. 

The opponents of " Protection " would point out 
that the industry, nevertheless, has not outgrown 
the need of a high duty (now 50 per cent, on silks) 
and of the higher prices that Americans must still 
pay; that the manufacturers, according to the 
complaint of the Women's Silk Culture Associa- 
tion of Philadelphia, discourage another active in- 
dustry, that of silk growing, for a duty " protect- 



FOREIGN TRADE.— BALANCE OF TRADE. 71 

ing " the material would reduce their profit ; that 
the hands do not get more wages than they would 
in non-protected industries; and that their total 
wages are less than half the duty paid by the 
American people on foreign silks, and do not 
equal the increase of price paid on American silks, 
which goes neither to the Government nor to the 
wage-earner, but to the manufacturer ; and that at 
Paterson the industry has been in great distress 
and many of the operatives at starvation point 
An indirect bad effect is the undervaluation and 
the weighting with dangerous dye-stuffs of im- 
ported silks promoted by the high tariff. 

In fact. Protection does not affect the wages of 
the laborer (except indirectly, and then often to 
lower them by the derangement of industry), but 
rather the profit of the director or entrepreneur in 
particular industries. To apply the doctrine to 
labor would be to levy head-money or prohibit im- 
migration, and to do this would be to protect the 
strong against the weak, which is unnecessary. It 
is sometimes added to the argument for " Protec- 
tion " that the result of compelling the people at 
large to pay higher prices and higher profits will 
ultimately be lower prices, as the protected indus- 



72 ECONOMICS FOR THE PEOPLE. 

tries grow into success, no longer need help, and 
produce cheaper. But, as a matter of fact, few if 
any industries seem to have been produced by 
" Protection ;" the industries which clamored orig- 
inally for five per cent, duty at last demanded fif- 
ty, and prices became cheaper only when the mis- 
directed production broke down and resulted in 
bankrupt sales. The hospital patient who is giv- 
en brandy to tide him over a crisis sometimes be- 
comes a sad drunkard when he comes out. 

Economists, with but few exceptions, have fa- 
vored " Free-trade" and opposed "Protection" on 
the moral ground that the taxation of the whole 
community for a part is not just ; on the economic 
ground that the restriction of the freedom of pro- 
duction is disastrous ; and on the practical ground 
that the benefits claimed as off-sets to these disad- 
vantages have not actually been produced. " Pro- 
tection" is opposed to revenue, because its pur- 
pose is to prevent the importations from which 
revenue is to be collected. A tariff for revenue is 
thus the contrary of a protective tariff. Revenue 
begins when " Protection " stops. Recent Ameri- 
can tariffs have been neither the one nor the oth- 
er; in trying to protect everybody, as the result of 



FOREIGN TRADE.— BALANCE OF TRADE. 73 

the "log-rolling" of each industry in turn, it puts 
a duty on the manufacturer's materials while it 
pretends to favor him, so that many goods that 
would naturally be made here are imported, and 
American labor is robbed of so much work, while 
the American manufacturers are shut out from 
the world's market by the high cost of materials. 

Connected with the " protective " theory of for- 
eign trade is the misleading doctrine about the 
"balance of trade." The balance of trade means 
" the difference between the value of the exports 
from and the imports into a country," and it is 
called "unfavorable" when imports of goods ex- 
ceed exports. This curious superstition holds 
that any one country is then in a dangerous finan- 
cial condition. But national prosperity is only the 
sum of individual prosperity (the debts or loans 
that are no-wealth being deducted in both cases), 
and a man counts himself richer when, without 
running into debt, he gets in more than he gives 
out. The difference in his favor is profit. This is 
just as true of nations. England's commerce is the 
most profitable in the world ; and the " balance 
of trade " is always against England. The im- 
ports of Great Britain were, in 1890, over $2,000,- 



74 ECONOMICS FOR THE PEOPLE. 

000,000; her exports over $1,600,000,000, a balance 
of $400,000,000 "against" her. This would mean 
an enormous profit, but for one fact too easily for- 
gotten, that debts sooner or later have to be paid 
for. The men of a nation, or the nation itself, may 
be borrowers or lenders in other countries. The 
men of England have loaned a great deal of money 
to other nations, and a good part of her imports 
are the goods with which other nations are paying 
interest or debts. The balance of trade therefore 
means very little either way until we look into the 
actual dealings, financial as well as commercial, 
that make it up. The United States, for instance, 
which is a producer of gold and silver, naturally 
exports the precious metals, which would make 
the balance of trade seem still more " against " us. 
Up to 1875 our net imports of merchandise, with 
the exception of a few years now and then, were 
steadily greater than our exports, but the great 
harvests changed the current, and in 1885 our im- 
ports were $620,769,652 and our exports $784,- 
406,414, these figures including specie and bullion. 
The balance of $163,000,000 "in our favor" went 
largely to pay our debt held abroad, or to pay the 
expenses of Americans travelling abroad, or has 



FOREIGN TRADE.— BALANCE OF TRADE. 75 

come back in specie when we should have made 
more by importing goods which would have paid 
a profit. In 1887, imports and exports, including 
specie and bullion, balanced at $752,000,000 each ; 
in 1888, our imports, of $783,295,100, including spe- 
cie and bullion, were again greater than our ex- 
ports, of $742,368,690; in 1889, our imports of mer- 
chandise, $745,131,652, were about offset by our 
exports, $742,401,375; but the large exports of 
gold and silver, $96,641,533, as compared with im- 
ports, $28,963,073, made the total exports $65,- 
000,000 in excess. In 1895 our imports were 
$776,669,219, and our exports $920,896,665. The 
actual flow of goods must not be confused with 
mere book-keeping of international accounts, in 
which the goods and bills of exchange sent each 
way must balance. Were all countries out of debt 
and prosperous, the balance of trade would be 
against every nation. The mistake of the balance- 
of-trade doctrine arose from the so-called ''com- 
mercial theory" of foreign trade, which held that 
nations should in every possible way be embargoed 
from dealing with each other, whereas Economics 
shows that, by trading, nations as well as men gain. 



XL 

THE NATURE AND USE OF MONEY. 

Everybody wants to "make money," and few 
think they need any instruction as to its "use." 
But in this sense the word money is used in a 
loose way instead of the word wealth, and a great 
deal of harm has come from this confusion of 
terms. From it, indeed, came the notion that a 
country grows wealthy in proportion as money is 
kept from going out of it, and the belief that Gov- 
ernment can make wealth by coining money or is- 
suing paper as a substitute for money. Money is 
simply that kind of wealth commonly current in 
exchange, and whose terms are used for valua- 
tions. It is peculiarly useful as a medium of ex- 
change and as a measure of value, but otherwise 
and for itself it may be one of the least desirable 
forms of wealth. 



THE NATURE AND USE OF MONEY. 77 

Just as a boy contrives "pin-money" to help 
out his "swaps," so the early nations contrived 
money to get rid of inconveniences in direct bar- 
ter. The shoemaker does not often want a hat 
just when the hatter wants a pair of shoes, nor can 
the hatter conveniently take one shoe for his hat 
or the shoemaker take two hats for his pair of 
shoes. Money, as a common medium of exchange, 
enables us to do away with the " double coinci- 
dence of wants and possessions," for which barter 
waits. We accomplish half our exchange — that 
is, the shoemaker sells his shoes, and holds the 
purchasing power in suspense — that is, the shoe- 
maker keeps the money till he wants a hat or 
something else. Or, if the shoemaker sells on 
credit, he uses the terms of money to record the 
indebtedness of the buyer in his books. The use 
of money, instead of barter, is one of the great 
steps of progress : the seller can now buy when, 
where, and as he desires. 

The first use of money, then, is as the common 
medium of exchange : any one will take it any- 
where for any goods, and it enables one to buy 
as much or as little as he wants. It is the high- 
way of exchange, enabling any producer to deal 



78 ECONOMICS FOR THE PEOPLE. 

with any consumer, and so fulfilling the first con- 
dition of wealth, of getting most for least labor. 
Second, money becomes in this way a common 
measure of value, or common " value - denomina- 
tor " by which the values of all other things are 
compared. A price - current in money is under- 
stood by all, and a hundred articles are priced in 
a hundred items, instead of in the 4950 it would 
take if we priced each article in terms of every 
other. This furnishes a universal language of 
trade. Third, money is a standard of values, or 
measure for deferred payments. This is the use 
in credit, which is purchase in which payment is 
put off. The word comes from the Latin word 
credo, " I believe," for it is given in the belief 
that the debtor will pay. A promise to pay at a 
future time is expressed in terms of money in 
preference to other commodities, because people 
understand this term and because they look upon 
money as of staple value. Fourth, money becomes 
thus a convenient storer of values, so that men can 
buy when they desire, now or in the future, to best 
advantage. There are here two distinct kinds of 
use — one direct, as the common medium in actual 
use in exchange ; the other indirect, as a common 



THE NATURE AND USE OF MONEY. 79 

measure, standard, and storer of values, in which 
not money itself but its terms are used. 

These two kinds of use — the use of the thing 
and the use of the name, or the direct use and the 
representative use of money — must be kept very 
clearly in mind. A farmer who says to his boy, 
** Go to the wheat-bin and get me a bushel," may 
mean a bushel of wheat or a bushel-measure : it 
is important for the boy to find out which. The 
word money or the word dollar admits of this 
same double sense. There is the same difference 
between a dollar which represents cost of produc- 
tion, or labor -value, and a dollar which is simply 
a name printed on a piece of paper, that there is 
between a "bushel" of wheat and a "bushel" 
measure. The one is good in itself ; the other is 
useless except so far as it is generally accepted to 
measure real products. 

Different nations have used different kinds of 
wealth as the common medium of exchange, which 
was the use for which money came into being. 
Our word "capital" comes from the Latin caputs 
a head, as does the word "cattle," and, like "pe- 
cuniary," coming from the Latin pecimia, wealth, 
pecus, a herd, pecu, cattle, points to the early use 



8o ECONOMICS FOR THE PEOPLE. 

of cattle and sheep as money by the Greeks, Ro- 
mans, and Germans. But these, though they could 
be driven about, could not be easily carried or di- 
vided ; and wheat was also used by the old nations 
as soon as they became farmers as well as herds- 
men, doubtless partly as " small change." Most of 
the barbarous nations selected that kind of wealth 
most current (whence our word currency), most 
easy to carry, and most easy to handle in small as 
well as large quantities. Dates were used by some 
African tribes, rock salt by the Abyssinians, olive 
oil by the Ionian islanders, tea compressed in small 
cakes by the Russians, tobacco by the early Amer- 
ican planters. The fees of the clerk of the Su- 
preme Court of the United States, in cases where 
the Government is a party, were long reckoned, fol- 
lowing old Maryland customs, in pounds of tobac- 
co, and settled according to an old legal valuation 
of tobacco. All these kinds of money recognize 
that the sound basis for money -y2i\mq^ is wealth — 
something which has cost proportionate labor. 

In the progress of civilization it was found 
that the metals were the most convenient kind 
of wealth to use as money. Iron was used by the 
Spartans, lead by the early Romans and early Eng- 



THE NATURE AND USE OF MONEY. 8 1 

lish, tin by Swedes, Mexicans, and other people, 
copper or bronze by almost all nations. All of 
these, of course, cost a certain amount of labor to 
mine them. At last it became settled that the 
two "precious metals," gold and silver, were most 
convenient of all. A third, platinum, was used for 
a little time in Russia. The two precious metals 
meet every condition for good money: they cost 
such an amount of labor as to make them conven- 
ient to handle within the common range of buying 
and selling ; they have utility as ornaments and in 
many industrial arts ; they are thus easily tr.ans- 
ferable and universally acceptable ; they are al- 
most imperishable, not wasting greatly either by 
handling, or rust, or conversion into coin and back 
again, and their fusibility and ductility render 
them accurately divisible. These, with copper or 
an equivalent as " small change " or token curren- 
cy, are the money of the trading world ; and as 
gold possesses most of the qualities named in even 
greater degree than silver, there is evident a ten- 
dency towards the use of that metal as the one 
final standard among the most civilized nations. 
The nature of "paper -money," so called, or sub- 
stitute-money, we have yet to consider. 



XII. 

GOLD AND SILVER AS STANDARD MONEY. 

"And Abraham weighed to Ephron the silver 
. . . four hundred shekels of silver, current money 
with the merchant" (Genesis xxiii. i6). This first 
record of a business transaction shows clearly the 
origin of metal -money — it was so much weight 
of metal. " Shekel " meant " a weight " (about half 
an ounce Troy), just as the English " pound " was 
at first a pound weight of silver. The shekel, 
later on (Exodus xxxviii. 24), was measured "af- 
ter the shekel of the sanctuary,** probably a stand- 
ard of weight kept in the Temple, like the standard 
weights now kept by each nation, by which its 
coinage is regulated. But the " shekel of gold " 
came to mean less weight than the " shekel of sil- 
ver," so that a standard was kept for each — prob- 
ably a result of just such changes in the value of 
the two kinds of money as we see in later times. 



GOLD AN-D SILVER AS STANDARD MONEY. 83 

Gold and silver have been found in almost all 
countries, and they were early used as money. 
Men soon found that it was easier to count than 
to weigh with scales. This led to coinage, the mak- 
ing of pieces of metal of fixed weight and fineness, 
whose value is shown by the stamp. The rude 
Abyssinians make their rock-salt into bars a foot 
long and three inches square, which serve the same 
purpose. In the early days, when all trading was 
a matter of honor, sealed bags of gold-dust passed 
at a fixed value. When public opinion made a 
dishonored man a social outcast, there was little 
cheating. Rings and the Chinese " cash " (dating 
to 2500 B.C.) were early forms of metal -money. 
Our modern coin, the round, flat piece, stamped 
on both sides, is traced back to the Greek Pheidon, 
king in Argos, about 750 B. C. The old coins were 
of irregular edge, which could easily be clipped or 
filed ; the edge is now " milled " by a machine in- 
vented in 1685, so that modern coins are protected 
against all loss but wear. To make this as little 
as possible, an " alloy " of harder metal is mixed 
with gold or silver — in the United States coins 
one-tenth copper alloy to nine-tenths fine metal, 
in the English coins one -twelfth — but only the 



84 ECONOMICS FOR THE PEOPLE. 

precious metal is reckoned in valuing the coin. 
In old times a coigne, or wedge, like the printer's 
quoin^ was used in stamping, whence our word 
" coin." The Roman coins were made in the 
Temple of Juno Moneta, whence our word *' mint," 
the factory where money is coined, as well as the 
word ** money " itself. 

Gold and silver are used as money partly be- 
cause they last longer, so that each year's product 
adds but a small proportion to the existing stock, 
and vary less in value than almost any other 
things. Nevertheless, they have varied in value, 
according to supply and demand : at one period 
both together, when all prices, or values of other 
things in money, rose as they fell ; in recent times 
silver falling greatly relatively to gold. Silver 
had been of equal value with gold in some barbar- 
ous countries. In Japan, when it was opened to 
foreigners, it took but four times the weight in sil- 
ver to equal the same weight in gold ; among the 
Greeks, before Xenophon, it took 13^; later, and 
among the Romans, 12 times, though it is said 
only 9 to 7j times the weight of silver equalled 
gold after the return of Julius Caesar. During the 
Christian era the rate has varied in different times 



GOLD AND SILVER AS STANDARD MONEY. 85 

and in different countries at the same time, being 
in the early centuries about 12J; later on as high 
for silver as 9f in England (1262) and ic^ in 
Spain (1500); in 1 641, about 12 in Germany, 13-^ 
in England, 13^ in France; in 1724, \\\ in France, 
15-^ in England; in the present French coinage 
15J and in the English 14^, while the market rate 
for silver bullion has of recent years ruled much 
below 151^, and has been as low as 32 weights of 
silver for the same weight in gold. 

It is agreed on all sides that steady money is 
most important for sound business. '' Monomet- 
allists " assert that only one kind of metal can 
properly be used as a standard, by preference gold, 
because silver must always have *' ups and downs " 
in relation to gold, and first one and then the oth- 
er would be used in business according to which 
was cheapest, if both were " standards." '' Bimet- 
allists" assert that the world needs both gold and 
silver for standard money, and say that if civilized 
countries would unite in coining silver at a fixed 
legal rate of I5-J or 16 to i gold, there would be 
no serious derangement. Most economists favor 
the single gold standard. The question has been 
made a political one, and two international con- 



86 ECONOMICS FOR THE PEOPLE. 

ferences have been held without reaching result. 
Great Britain and its Australian and American 
colonies, Germany, Scandinavia, and Chili, are the 
chief gold standard countries, using silver as "■ le- 
gal tender " only for small sums ; Russia, India, 
China and Japan, Mexico and Central America, 
use a single standard of silver. The double 
standard is maintained by France, Italy, Belgium, 
Switzerland, and Greece, which are bound into 
the " Latin Union," by Spain, and by the United 
States. Silver, which up to the fourteenth centu- 
ry was chiefly used for coinage, seems to remain 
the money of the less civilized countries ; the 
general tendency seems to be in favor of a single 
standard, and that gold. . 

But the two metals, used as money, have also 
had their " ups and downs" together. There was 
in circulation in the Roman empire in the time of 
Christ (so Mr. Jacobs estimates) about $1,790,000,- 
000 gold and silver. With the decline of the 
empire and the invasion of the Goths mining 
practically stopped, and the loss and wear of 
coined money reduced the stock in Europe by 
the year 800 to less than $168,000,000, a point at 
which it was kept, by the revival of mining, until 



GOLD AND SILVER AS STANDARD MONEY. 8/ 

the discovery of America in 1492. Meanwhile 
money had greatly risen in value ; it required only 
£1 105. weekly ($17.50) for the subsistence of King 
Henry VI. and ten retainers while prisoners (1470) 
of Edward IV. The discovery of America began 
a new chapter in the history of money; after the 
opening of the great silver mines of Potosi in 
1545, and the invention by a Mexican miner of the 
process of amalgamating silver with mercury, over 
$10,000,000 yearly was sent to Europe. Money 
fell rapidly; the price of corn rose in England 
from 2s, to 65. and %s. per quarter ; prices general- 
ly rose fourfold ; debts were made almost nothing ; 
and to the ensuing derangement and distress his- 
torians trace the beginning of English pauperism, 
and those money troubles of Charles I. which led 
to the great rebellion. 

About 1809 Europe had $1,900,000,000 metal- 
money in circulation, but the Spanish-American 
revolutions reduced the silver supply, and the 
product of the Ural gold-mines, opened in 1823, 
did not make good the loss, so that in 1829 the 
stock was down to $1,566,000,000. The discover- 
ies of gold in California (1848) and Australia (185 1) 
again changed the face of things. The annual yield 



88 ECONOMICS FOR THE PEOPLE. 

of gold and silver, over two thirds gold, while be- 
fore it had been two thirds silver, rose to $190,- 
000,000 and over. It is estimated that the com- 
mercial countries had in 1895 $8,000,000,000 
coin and bullion, about half gold, of which the 
United States had $636,000,000 gold and $624,- 
000,000 silver; France, $850,000,000 gold and 
$487,000,000 silver; Great Britain, $580,000,000' 
gold and $115,000,000 silver; and Germany, $625,- 
000,000 gold and $215,000,000 silver. The open- 
ing of the Nevada and Colorado mines has in- 
creased the relative production of silver ; out of 
the world's product (1895) of $203,000,000 gold 
and $226,000,000 silver (U. S. coinage value), the 
United States supplied $46,000,000 gold and %T2,- 
000,000 silver, or one third. Silver in the London 
market has fallen as low as 32 to i. But the great 
increase in money seems to have been offset by 
the increased productive activity brought about 
by machinery and by other causes. 

Variations in prices from period to period have 
led economists, and particularly Professor Jevons, 
to urge the use of a " tabular or multiple standard 
of value " for deferred payments, made by averag- 
ing the prices of articles of common use. 



XIII. 

UNITED STATES MONEY. 

During our war, when metal-money, and par- 
ticularly " change," was very scarce — so that we 
used postage-stamps and afterwards " postal cur- 
rency," representing five or ten or twenty-five or 
fifty cents* worth of postage-stamps — a good many 
shopkeepers issued copper tokens "good for one 
cent," which passed current as money. Many of 
them were not good for a cent, and were never 
redeemed by the issuers. Probably in the early 
days of coinage, private people thus made coins. 
But now only nations do so, for "the public faith" 
is the best surety that coins contain so much metal 
of such a fineness, or will be good for the money's 
worth, and coinage is, as Jefferson said, " peculiarly 
an attribute of sovereignty." Counterfeiting was 
once punished in England as treason, by death ; 
it is punishable in this country, in the case of 



90 ECONOMICS FOR THE PEOPLE. 

United States notes, by fifteen years imprison- 
ment. It is recognized as one of the most seri- 
ous crimes against property, because it under- 
mines the very foundation of sound business, hon- 
esty in weights and measures. Even were good 
metal used, coining by individuals is by law a 
misdemeanor. 

The Constitution gives to Congress the power 
" to coin money, regulate the value thereof and of 
foreign coin, and fix the standard of weights and 
measures," and denies to the States power to " coin 
money ; emit bills of credit ; make anything but 
gold and silver coin a tender in payment of debts." 
A clause giving Congress the power to " emit bills 
on the credit of the United States " was struck 
out in the debates, to avoid, as was said in the 
debates, even a" pretext for a paper currency, and 
particularly for making the bills a tender either 
for public or private debts." The Continental 
Congress in 1785 unanimously adopted as the 
money unit the "dollar," the name coming through 
the Spanish " dollar " from the German " thaler, 
or " Joachimsthaler," the Joachim thai or dale 
being the seat of great silver-mines where ounce- 
pieces were coined. The law establishing the mint, 
1792, provided for a silver-dollar unit of 416 grains, 



UNITED STATES MONEY. 9 1 

37 ij grains of it fine metal, and a gold ** eagle " or 
ten -dollar piece of 270 grains, 247J grains fine 
("the proportionate value of gold and silver" be- 
ing defined "as 15 to i, according to quantity in 
weight "), besides other gold, silver, and copper 
coins. In 1834 and 1837, changes were made, the 
later law providing for coin -^ fine, the silver dol- 
lar weighing 4I2|^ grains and the gold eagle 258 
grains. The present coins are : of gold, the double- 
eagle ($20), eagle ($10), half-eagle ($5), and quarter- 
eagle ($2^), the gold dollar (not coined since 1890) 
being the money unit with a standard weight of 
25.8 grains ; of silver, the dollar, half-dollar, quar- 
ter-dollar, and dime ; of base metal, the five and one 
cent pieces. The law of 1853 provided that half- 
dollars and other subsidiary silver coins should con- 
tain but 384 grains gross weight to the dollar, and 
made a seigniorage charge of one half of one per 
cent. — afterwards reduced. From 1873 to 1878 the 
silver " trade-dollar" of 420 grains (378 fine metal) 
was struck, chiefly for foreign trading. It was a 
legal-tender, by an oversight in the law, up to five 
dollars, till 1876, when its legal-tender character 
was repealed. In 1883 Government declined to 
receive it at full value, people began to realize that 



92 ECONOMICS FOR THE PEOPLE. 

it did not contain a dollar's worth of silver, and it 
fell to about 85 cents. In 1873 the gold dollar 
of 25.8 grains gross weight was made " the unit of 
value." In 1878 Congress passed over the veto of 
President Hayes the Bland-Allison Act, providing 
for a "standard silver dollar" of 412^ grains as 
an unlimited "legal tender," and the coinage of 
$2,000,000 to $4,000,000 of these per month, and 
in 1887 these were made exchangeable for the 
"trade dollar." The "Sherman Act" of 1890 
provided for the purchase at market price of 
4,500,000 ounces of silver each month, of which 
2,000,000 ounces, or enough to provide for the re- 
demption of " silver certificates," should be coined 
monthly, the profit or seigniorage going into the 
Treasury. This act was repealed in 1893, to stem 
the panic of that year. 

This panic was caused by the fear that the sil- 
ver dollar, worth as metal only 51 cents, might 
become the money of account. People drew gold 
from the Treasury by presenting paper currency 
until the Sub-Treasury at New York was " within 
twenty-four hours " of suspending gold payments. 
The President averted disaster by using his power 
to sell bonds for gold. 



UNITED STATES MONEY. 93 

The Government declares what money shall be 
"legal-tender" among its citizens, that is, what 
kind of money when tendered by a debtor shall 
make a legal offer to discharge a debt. If you 
offer to pay rent in any other kind of money than 
legal-tender, the landlord can refuse to accept it, 
and can get a court to put you out as though you 
had refused to pay. The gold coins of the United 
States and the " standard silver dollar " are legal- 
tender for all sums ; the small silver for sums not 
exceeding ten dollars ; and the nickels or the old 
copper cents for sums not exceeding twenty-five 
cents in any one payment. The small silver and 
nickels, issued for " change," make no pretence 
to full value, and are a " token money," to be re- 
deemed by the Government. They are purposely 
under-weighted, so that they shall not be melted 
down or carried out of the country. 

The word legal -tender is commonly used to 
signify the " United States notes " or " green- 
backs," issued under the acts of February 25, 
1862, and March 3, 1863, which say on the back: 
"This note is a legal-tender at its face value for 
all debts, public and private, except duties on im- 
ports and interest on the public debt," both of 



94 ECONOMICS FOR THE PEOPLE, 

which are payable in metal - money. The law 
signed by President Lincoln, February 25, 1862, 
was the first making anything but gold and silver 
coin a legal discharge of debts, although the Con- 
tinental Congress, January 4, 1777, passed a resolu- 
tion asking the States to declare its bills-of-credit 
legal-tender, which was done by eight States. The 
law of 1862 was passed as a "war measure," and 
included "all debts within the United States." In 
December, 1869, the United States Supreme Court 
declared that the legal-tender clause was "««neces- 
sary and ////proper," that its application to pre-ex- 
isting debts impaired the obligation of contracts, 
and that the law was therefore unconstitutional. 
In 1870 two vacancies on the bench were filled by 
President Grant ; on a new case a rehearing was 
had, and in January, 1872, the decision was over- 
ruled, and it was held that " Congress has power 
to enact that the Government's promises to pay 
money shall be, for the time being, equivalent in 
value to the representation of value determined 
by the coinage acts." " There are times," added 
Justice Bradley, " when the exigencies of the State 
rightly absorb all subordinate considerations." 
This decision justified the issue of legal- tenders 
as a war measure ; but a third decision, in March, 



UNITED STATES MONEY. 95 

1884, went further, and declared, only one judge 
dissenting, that Congress has full power at any 
time to authorize the issue of legal-tender notes, 
on the ground that this is an attribute of sover- 
eignty not reserved or denied by the Constitu- 
tion. The decision is regarded by most econo- 
mists as dangerous, and it is believed that even 
the war could have been carried on at less final 
cost if other financial measures had been used. 

Of course, in making metal-money it costs some- 
thing to test the metal and stamp it into coins. 
This cost may be paid for as a general expense of 
Government out of taxes, and the full weight, or 
face -value, of metal put into the coin. This is 
" gratuitous coinage," and is the English practice. 
Some economists object that it leads jewellers to 
melt up new coins instead of assaying for them- 
selves, and makes the Government pay for a " per- 
petual motion " of coinage. Or, this cost may be 
paid by deducting enough metal before making 
the coin. This deduction is "seigniorage," the 
pay of the seignior or sovereign. Up to 1853 the 
United States had gratuitous coinage, but in that 
year a seigniorage of one-half of one per cent, was 
established for gold coins and silver dollars, re- 
duced in 1873 to one-fifth. Since 1875, gold coin- 



96 ECONOMICS FOR THE PEOPLE. 

age has been gratuitous. Both England and the 
United States now have " free coinage " for gold ; 
that is, any citizen can have gold bullion (uncoined 
metal) made into coin by the mint on the same 
terms as the Government. The coinage of stand- 
ard silver dollars is now determined in the United 
States by the redemption of " silver certificates," 
and is practically discontinued because of the great 
number in the Treasury vaults. The amount of 
'* change " coined depends upon the public need, 
as determined here by the Treasury, in England 
by the Bank of England. 

The trouble with seigniorage is, that it makes 
it easier for a government to debase its own coins, 
either by putting in less metal or by mixing in a 
cheaper metal. Up to 1 300 (Edward I.) a " pound " 
really meant a pound's weight of silver, and a shil- 
ling a twentieth of that. But the coinage was 
again and again reduced in weight, so that for 
generations, it is now supposed, the English peo- 
ple actually weighed out their coins in settling 
payments. The steadiness of prices in face of a 
known debasement of coinage cannot otherwise 
be explained. Sixty-six shillings now make up a 
pound of silver, so that the pound sterHng is but 
three-tenths of a pound's weight of silver. Sev- 



UNITED STATES MONEY. 97 

eral English monarchs, notably Henry VIII., also 
debased their coinage secretly by alloy. One of 
the Spanish gold coins, a maravedi, was debased in 
quality till it becanae only copper. People, how- 
ever, may go on taking this debased money and 
calling it by the old name for a long time, and one 
of the great economists, Ricardo, sets it down as a 
law of seigniorage that a debasement of coins does 
not of itself produce depreciation of currency, so 
long as no more is issued than the people really 
need in their exchanges. This is true so long as 
people are willing to take the poor money as good, 
either because they cannot get better, or because 
they do not know better, or because of habit, or 
because the law tells them to. But when they 
begin to get afraid of the debased money, and 
prices start up, so that a dollar in wages does not 
buy in the cheap money what it did, and they take 
to barter, or modify or limit their production, then 
come '' bad times." The people who earn wages, 
and the small shopkeepers, feel the effect worst. 
This happened in 1883, when our "trade-dollar" 
stopped circulating ; the poor people and country 
stores could buy only 85 cents' worth with the 
dollar they had taken for a hundred cents. 

7 



XIV. 

PAPER AS MONEY. 

Even the precious metals weigh a good deal, 
and, in large amounts, are inconvenient to carry 
or to keep. If, therefore, a government, or a bank, 
or a trustworthy person, will keep the coin for the 
owner, and give him paper certificates that it is 
held by them, he likes these better, though they 
are only pieces of paper, worth nothing in them- 
selves. They are like the title-deeds of a house. 
The "gold certificates' and "silver certificates" 
of the United States are of this sort. Such paper 
is " representative money " in the strictest sense, 
since each "dollar" represents an actual dollar in 
metal -money, and it is "convertible" at any mo- 
ment into metal-money. The metal remains un- 
used, while the paper passes current from hand to 
hand in its place, as currency. 

Now, a banker finds that this unused money is 



PAPER AS MONEY. 99 

not called for by its real owners all at the same 
time. If they permit him to use or loan part of 
the metal, he can make a profit for them or for 
himself or for both by getting interest for it, keep- 
ing enough " reserve " of metal to pay the demands 
presented each day. The Bank of Sweden, found- 
ed in 1657, early issued " bank money," or notes 
undertaking to pay to the bearer at sight a certain 
amount of metal-money. So long as such money 
can actually be had on demand for the paper, this 
kind of paper currency is also "• convertible." 

If, however, the bank managers make a mistake, 
and do not keep enough reserve, the holders of 
notes may become frightened and make a " run " 
on the bank to get their part of the metal out be- 
fore other depositors use up the supply. The 
bank may then have to '' suspend payment " until 
it can " realize " on the securities it has taken for 
loans, that is, get real money for them. If enough 
people are scared to make a general "panic," it 
will be very hard to get the real money even by 
selling the securities at a loss. Thus notes which 
were called " convertible " become " inconverti- 
ble," because you cannot on demand convert 
them into the metal -money for which they are 

LofC. 



ICO ECONOMICS FOR THE PEOPLE, 

supposed to stand. Their power-in-exchange, or 
value, will be no longer " as good as gold," but 
will depend on the confidence people have in the 
ability of the issuer to pay by-and-by. 

During the war our Government, not having 
enough money for its needs, said to the soldiers 
and the shopkeepers : " We cannot pay you mon- 
ey now, but we will some time : meanwhile these 
pieces of paper are evidences of debt, which other 
citizens must accept from you as money." These 
were the " legal-tenders," a paper currency incon- 
vertible at the time of its issue, but which became 
convertible when the United States " resumed " 
specie payment, January i, 1879. ^^ was a mort- 
gage on the earnings of the people, to be collected 
by future taxes. Other governments, when hard 
up, have done the same thing, but usually their 
currency has not been made good. The assignats 
of the French revolution assigned to the holders 
the lands seized by the State, but few holders got 
the lands or saw their money again ; our Conti- 
nental currency in like manner became worth 
nothing. Inconvertible currency of this sort is 
not representative of wealth, but evidence of debt : 
it is promises-to-pay, or credit-money. A govern- 



PAPER AS MONEY, lOI 

ment may use its authority to force a loan and 
give such currency compulsory circulation, but its 
power-in-exchange, like that of inconvertible bank 
money, depends at once on the confidence in its 
being made good. In the dark days of the war 
greenback dollars bought less than forty cents gold 
would buy; and when the Government tried to 
prevent their further fall by prohibiting dealings 
in gold, people only lost confidence all the more, 
and greenbacks bought still less. 

The economist Ricardo points out that govern- 
ment inconvertible currency is like a coinage de- 
based its entire value, for the cost of printing is 
almost nothing. According to his " law of seign- 
iorage," such a debased currency does not necessa- 
rily depreciate, or buy less than its face-value, if 
no more of it is put in circulation than the public 
needs. But usually people become afraid that it 
is not worth its face-value ; it falls — i. e., buys less ; 
more is needed to make the same amount of pur- 
chases ; and thus depreciation, inflation of prices, 
speculation, and all their train of ills set in. There 
have been very few cases where an inconvertible 
currency has kept at par (of equal value) with gold. 
The Bank of England notes from 1797 to 1808 



102 ECONOMICS FOR THE PEOPLE. 

(after which date they fell), and those of the Bank 
of France in 1848 and after 1871, are almost the 
only instances. 

We cannot, in short, speak of "paper -money" 
as though it were all of one kind or one quality — 
all good or all bad. We must discriminate, as we 
would between a 2.40 trotter and a tread-mill sack- 
of-bones, though each is called a horse. Econo- 
mists dispute fiercely as to whether paper can or 
cannot be "money," but this is really a quarrel 
about words. " Money is that money does," says 
one economist. Some use the word " money " to 
cover any substitute, others only for the metal or 
other value-money itself. The last is the original 
meaning and does not mislead, and paper is more 
accurately called substitute - money or currency. 
As a common medium of exchange, paper is more 
convenient than metal; it costs less to print it 
than to make coins. If paper is worn, or lost, or 
destroyed, in transit, no wealth is lost ; without it 
the great volume of modern trade could scarcely 
have developed, and the lack of circulating me- 
dium would have greatly disturbed prices. It has 
accordingly been used for many centuries ; Marco 
Polo found a paper currency of mulberry -bark 



PAPER AS MONEY, IO3 

in China before 1300. Adam Smith likens it to a 
highway in the air, leaving the old roads for crops. 
But as a common measure of value, it really de- 
pends on its own relations to metal-money, and as 
a standard of deferred payments and a storer of 
values it may prove ruinously treacherous. When 
"greenbacks" fell to 40 per cent., all who owed 
debts gained, though only till they had to borrow 
again ; when they rose, all who owed lost — in nei- 
ther case by their own doings. An inconvertible 
paper currency is usually costly in the long run. 
We honor the " blood-stained greenback " for its 
help in the war; but if our financiers could have 
avoided paper currency — as Napoleon, after the 
paper collapse of France, did throughout his great 
wars — we might have been saved the enormous 
loss of paying out at forty cents and redeeming at 
a hundred. Steadfastness is the great safeguard 
of sober industry, and paper currency has been 
called "the alcohol of commerce" and "mock 
money." " In the land of Mendacity," says an 
Italian writer, " they use only paper-money." 

Paper currency lacks also the final quality of 
real money — universality — for it is " good " only 
within the bounds of the credit of the country 



104 ECONOMICS FOR THE PEOPLE. 

which issues it. Metal-money helps trade to reg- 
ulate itself. If sugar is cheap in the West Indies, 
i.e., money dear, or if a great wheat crop has 
brought us an excess of metal (which the United 
States produces and usually exports), i. e., money 
is cheap, money flows from us to the West Indies 
and we get our sugar cheap. But if we have a 
debased money, the natural course of trade is 
checked and we lose the profit. 

Also, when full-value and debased currency are 
circulating together with the same purchasing 
power, " bad money," as stated by what is called 
Gresham's law, " always drives out good money," 
which people hoard or send away where they can- 
not use the bad money. When bad money thus 
checks exchange with other countries, it acts at 
home to check production, raise prices, produce 
inflation, and wreak ruin. It shuts out a country 
from the benefit of the world's trade, and makes 
buyers fewer. Thus " cheap money " is dear in 
the end. 

There could not be a greater misfortune to 
every honest worker — farmer, shopkeeper, or me- 
chanic — in the United States, than the issue of so- 
called ''fiat money" i^'a.'^m, fiat, let it b^ created) 



PAPER AS MONEY, I05 

as a means of creating wealth. You cannot make 
nothing good for something by printing on paper 
" good for one dollar, on the credit of the United 
States," without the intention of ever paying the 
dollar. This would not be credit money, because 
credit means belief in final payment. It would 
have no "labor- value," nor any value, because it 
would neither cost labor, nor represent labor stored 
as wealth, nor be a promise to pay labor. The 
Government could circulate it only by paying it 
out for work, or for existing debts, or by loaning 
it, or by giving it away. If it were given away, 
either everybody could get it alike, so that no 
one would need to sell real things for it, or a few 
in the ring would get it at the expense of the 
many. If it were loaned, the borrowers would 
some day have to pay back, probably with a more 
costly currency after the ^^ fiat money " had disap- 
peared from sight, so that a mortgage would eat 
up the farm or the house. If it were paid out for 
work, that is, in wages, a laborer getting three 
" dollars " a day in place of one would be no bet- 
ter off, because the farmer would require three 
dollars instead of one for the wheat which cost 
him a day's work. Prices would rise, but a day's 



I06 ECONOMICS FOR THE PEOPLE. 

work would not buy more. Dishonest men who 
owed debts would gain by forcing such a legal- 
tender on the people they owed ; but new deal- 
ings would be on special contracts to pay in real 
money, as in the time when greenbacks were low- 
est, for no law can make a man sell what he pre- 
fers to keep. As times grew harder, " more money " 
would be the cry, as the drunkard cries for more 
rum, and the currency would be worth less and 
less. When the sham came to its end, the worth- 
less paper would be not in the bank and the mer- 
chant's safe, but in the pocket of the worker and 
the till of the small shopkeeper. This happened in 
the case of the silver trade-dollar also, and a like 
thing would happen if the under -weight silver 
dollar drove out gold. All this is true as to all 
" cheap money," that is, money in which the coins 
have not full value or full weight in fine metal. 
" Repudiation " is the most foolish crime of states, 
for it prevents all credit : ^^ fiat money " is a repu- 
diation in advance. "A disordered currency," 
said Daniel Webster, is " the most effectual of in- 
ventions to fertilize the rich man's fields by the 
sweat of the poor man's brow." 



XV. 

BANKS AND BANKING. 

The little rills up on the hill-sides do not count 
for much, but when they fill the mill-pond the 
farmer can grind his grist and the woodman can 
saw his logs by their help. A bank is just such 
a reservoir of money stored for use. The depos- 
itors add their dollars to the capital of the stock- 
holders, and this money is then let out when and 
where it is needed for business. These loans are 
often made to governments, either directly or by 
buying Government issues. This was, in fact, the 
purpose of the first public banks, started in Italy 
probably before 1200. The Greeks had their tra- 
pezites or bankers, so called from the table (trapeza) 
on which they counted out the money ; and when 
banking was revived by the Jewish money-lenders^ 
of Italy in the Middle Ages, each had his banca, or 
bench, which was broken {rotta or rupta) when he 



I08 ECONOMICS FOR THE PEOPLE. 

failed to pay as he promised, so he was said to be- 
come bankrupt. 

Besides loaning to governments or to corpo- 
rations — that is, buying their " bonds ** or " securi- 
ties " — banks loan their money to private persons, 
such as merchants, whose promises-to-pay are called 
notes -of -hand or mercantile paper. The use of 
money is paid for by adding an extra sum called 
interest at the end of the time, say $io6 for $ioo 
at the end of a year, or by deducting a like sum as 
discount, the borrower receiving but $94 instead of 
the $100 he promises to pay a year hence. If mon- 
ey is scarce or times risky, or the man doubtful, 
so that his credit (the belief in him) is poor, he will 
have to pay greater interest or discount ; if the 
money market is " easy," less. The bank may trust 
him simply on his note, or he may give it collater- 
al — that is, securities along-side with his own prom- 
ise. This loaning is the first way in which a bank 
does service and makes profit. 

A bank usually permits its depositors to draw 
on it orders to pay money, called checks, a word 
which comes from Exchequer, the name given to 
the British Treasury because it formerly used a 
checkered table like a chess-board for convenience 



BANKS AND BANKING. IO9 

in counting. This enables men to pay debts with- 
out carrying about money. The great " clearing- 
houses " in New York and London do this service 
for the banks themselves, clearing up at the close 
of each day transactions of millions by receiving 
orders on banks which owe from banks which are 
owed, and transferring any small balance from a 
debtor bank to a creditor bank. This cancelling 
of indebtedness is a second service of banking. 

A bank also, by the help of banks in other 
places, collects distant debts. A creditor — that is, 
some one to whom money is owed — " draws " upon 
the debtor who owes him ; the draft, or order-to- 
pay, is sent by a bank in New York to its corre- 
spondent bank in Chicago, which sends out a run- 
ner to collect it from the Chicago debtor. Or it 
may be the debtor's own note which is sent on for 
collection. If he does not pay, the bank protests, 
and returns the draft or note with an affidavit 
called diprotest. When drafts are drawn upon peo- 
ple in other countries they are called ^* foreign ex- 
change." The bank sells to a man in New York 
the right to receive or transfer in London, for in- 
stance, money due by some other Englishman to 
some other American. This saves the risk and 



no ECONOMICS FOR THE PEOPLE. 

cost of sending specie, i.e., gold or silver money 
or bullion ; and the charge for this service — that 
is, the rate of exchange — varies, within the limits 
of the cost of shipping specie as freight, according 
to whether more or less money is due in London 
than there are debts to be paid there. It costs a 
little over half a cent to get a gold dollar safely to 
London ; the value of the English pound, in which 
London settlements are made, is reckoned by our 
mint at $4,863^; the rate-of-exchange brings a 
bill -of- exchange perhaps to $4.90, above which 
point it pays better to ship gold. This collection 
of debts is a third service of banking. 

A bank dealing in money knows how much for- 
eign or debased coins are really worth, and buys 
them for that much current money. Where there 
is mixed money this is very important: it was 
the origin of the great Bank of Amsterdam and 
of much of the mediaeval Jewish banking. This 
is a fourth service. 

A bank is also a place of safe deposit for valu- 
ables, and English banking grew out of the busi- 
ness of the goldsmiths, who took valuables for 
safe-keeping, and got in the habit of advancing 
money on them. Many of the Crusaders thus 



BANKS AND BANKING. Ill 

borrowed money of the Jews. This is a fifth serv- 
ice of banking, though now " safe deposit compa- 
nies " have taken much of this business. 

Here, then, are five kinds of service which a bank 
performs, and for which it rightly earns money, 
without touching what most people think is the 
chief work of a bank, the issue of paper- money. 
The earliest "bank of issue" was probably that of 
Sweden, founded in 1657. Like each of the other 
five named, this service may or may not be a feat- 
ure of a true bank : the " issue department " and 
the " banking department " of the great Bank of 
England are virtually two separate banks, doing 
different things. The issue of paper-money, if wise- 
ly done, is a sixth service, but it includes the great- 
est danger of the banking business. In England 
only the Bank of England, which is the financial 
representative of the Government, can issue bank- 
notes, and, above £15,750,000 represented by se- 
curities (of which the £11,000,000 owed by the 
Government to the bank is the greater part), it 
must keep a pound in gold in its vaults for each 
pound-note issued. This is the result of Sir Rob- 
ert Peel's famous Bank Act of 1844, in which the 
advocates of the " banking principle " upheld by 



112 ECONOMICS FOR THE PEOPLE. 

Thomas Tooke, who argued that so long as you 
can actually get gold for your bank-note there is 
no need of limiting issues by law, were defeated 
by those who held to the " currency principle," 
led by Lord Overstone, who argued that without 
such limitation currency is almost sure to be over- 
issued and so inflate prices by its depreciation. 
Our '' National currency," issued by the National 
Banks, is protected by a deposit with the United 
States Treasury of Government bonds, against 
which only ninety per cent, of their face-value can 
be issued in currency, and by the Government guar- 
antee of receiving it for all dues except interest on 
the public debt. These banks also keep a gold re- 
serve, usually about 12 per cent, of their notes. 

The one purpose of all these branches of the 
banking business is to make the most of the ex- 
isting stock of capital. Safely done, this helps 
everybody. Careless banking, on the contrary, 
cripples all business. The need of banks wherev- 
er people do business is shown by the fact that 
when a little place starts up in the West, the keep- 
er of the country store becomes virtually banker 
for the place until a public bank is started. The 
" wild-cat " banks before the war at the West, nev- 
ertheless, did a great deal of harm : they issued 



BANKS AND BANKING. II3 

great quantities of paper-money, kept as little as 
two per cent, of specie, and failed to pay their 
notes. The country was cursed with paper-money, 
much counterfeited, from hundreds of banks of all 
shades of credit, which no one would take until he 
could look up the facts in the Bank-note Detector^ 
issued monthly in those days. This system of 
banks chartered by the States was largely super- 
seded, early in the war, by the system of National 
Banks, under acts of February 25, 1863, and June 
3, 1864. The greatest amount of notes authorized 
was $354,000,000, which was never quite reached. 
These notes were covered by the deposit of Unit- 
ed States bonds, and gave a safe and convenient 
currency, similar to the " greenbacks." The prof- 
it of interest and on lost notes, as in the case of 
State-bank notes, is made by the banks, and not, 
as in the case of*' greenbacks," by the Government ; 
but this is perhaps compensated for by the service 
done by the banks, and the regulation of the cur- 
rency by the needs of business instead of by arbi- 
trary law. The present problem of banking is 
what securities can be used as a basis of National- 
bank notes, as the Government pays its debt and 
withdraws its bonds. 

8 



114 ECONOMICS FOR THE PEOPLE. 

In 1895 there were 3712 National Banks, with 
$657,000,000 capital, $1,715,000,000 deposits, and 
$182,000,000 circulation; there were also reported 
1017 savings-banks, with $1,844,500,000 deposits; 
and 5086 State and private banks and trust com- 
panies, with $392,500,000 capital, and $1,340,800,- 
000 deposits — these being but partial returns ; so 
that we have over 9800 banks, with probably 
$1,050,000,000 capital, and nearly $5,000,000,000 
deposits. 

Savings-banks are confined usually to receiving 
deposits in small sums, and pay the depositors, in in- 
terest and dividends, the whole profit from the loan- 
ing of this money. They are governed by trustees 
representing the depositors, only a few having separ- 
ate capital and stockholders, and they are restricted 
by law from loaning except on specified security. In 
England the Post-office Department is a great sav- 
ings-bank, receiving savings in postage-stamps or 
money at each post-office, and loaning the total to 
Government by investing it in Government bonds. 

Banks, we have seen, are really stores which deal 
in money, collecting it and letting it out much as 
a grocer buys and sells groceries. They give credit 
for money just as a grocer would give credit for 



BANKS AND BANKING. II5 

goods. But because money is the general medium 
of exchange, and banks are usually public institu- 
tions, the bank reports, showing the '' reserve" held 
by them, show the commercial condition of the 
community much as a steam-gauge shows the pres- 
sure in a steam-engine. When money is "scarce" 
and much wanted, or when times are risky, bank- 
ers charge a greater rate of interest or discount ; 
and as London is the great banking centre, the 
rate made from week to week by the governors of 
the Bank of England, usually varying between 3 
and 4 per cent., is an indication of the state of 
trade in the whole world. Bankers need to be 
very wise in these matters, else the community 
may be tempted into over-speculation by too free 
loans or frightened into panics by over- caution. 
Thus the usefulness of any bank, and of the whole 
banking system, depends upon the honesty and 
good judgment of the men conducting it. No 
law can prevent foolish people from putting mon- 
ey into swindles which call themselves " banks " 
or " bankers," and such people must pay the pen- 
alty in loss. But a system of sound branch banks 
throughout the country, like that in Scotland, is a 
great boon to a people. 



XVI. 

LAND AND ITS FEATURES. 

When a farmer gets what he calls a fair price 
for a bushel of potatoes, say 40 cents, he finds, 
when he thinks it out, that he has paid or has to 
pay say 5 cents for the use of the land on which 
the crop was grown; 15 cents for seed, fertilizers, 
and replacing his tools; 15 cents for labor in 
planting, hoeing, and digging ; and has left 5 cents 
"profit," which is his own pay for his skill in man- 
aging the crop and taking the risks of it. Or a 
cotton-mill corporation which gets 7 cents a yard 
for its sheetings finds that the use of land and wa- 
ter-power has cost it J cent a yard ; the use of its 
mill and machinery and the cotton it uses, all of 
which are expenditures of capital, 5 cents ; wages, 
li- cents ; leaving for cost of administration and 
net profits f of a cent. 

" Unto each, its own.*' By means of Exchange, 
with money for its chief instrument, the result of 



LAND AND ITS FEATURES. n/ 

Production becomes the subject of Distribution, 
and each factor which ^^;2tributes to the product 
is entitled to its share when that product, or its 
returns in money, is ^^.ftributed. Having now 
learned the meaning of value and price, the nat- 
ure of money, and the functions of banking, we 
come to the consideration of the several factors in 
Production and their payment in the Distribution 
of product. The principal factors are Land, Cap- 
ital, Labor, Brains, contributed by the Land-own- 
er, the Capitalist, or wealth - owner, the Laborer, 
or hand -worker, the Director of production, or 
brain - worker, who are paid by Rent, Interest, 
Wages, Profits. Any or all of these may be com- 
bined : a farmer who owns his farm, who does not 
have to borrow capital for seed and tools, and who 
does his own work, does not have to pay out to 
anybody else any part of his 40 cents, except for 
taxes and insurance; but all the same the crop 
must pay him rent, interest, wages, as well as prof- 
its, or his farming ''does not pay." Taxes, in- 
surance, and the like, we shall see later on, are 
an indirect payment for the factors in production 
above noted. 

The one great exception to the general truth 



Il8 ECONOMICS FOR THE PEOPLE. 

that all wealth comes from work is Land, the use 
of which is paid for by Rent — that is, the amount 
rendered by the user to the owner. For capital 
is but stored labor, and the Director also labors, 
though with his brains instead of his hands. Land 
is the contribution of nature, valuable in exchange 
because it is limited in quantity and various in 
quality. Air every man may have, and it is all 
alike ; therefore no man buys it. This is not so 
with land, which, in the economic sense, includes 
all property connected with the earth, as water- 
power, or shooting rights, or shore rights, or the 
right to fish in privately owned waters ; in brief, 
anything that is "rented," not of human origin. 
It is usual to speak of the rent of a house or a fac- 
tory, but economists confine the word to that part 
of the payment which is for the land itself, the 
building being really a form of capital, paid for by 
interest. Rental is perhaps a better word for rent 
and the payment for the use of buildings. Land 
and the fixtures upon it are often spoken of as 
realty or real property, to distinguish them from 
personalty or movable property. Land is the 
primal source of all product extracted by labor' 
it is the mother of wealth. 



LAND AND ITS FEATURES. II9 

When men ** possessed the earth," and " the land 
was all before them where to choose," they found 
that there was in fact a choice, for some land was 
better for their purpose than other land. The 
wandering tribes of herdsmen sought the best 
pasturage, and sometimes fought for its posses- 
sion. As men became civilized and tillers of the 
soil, they settled, whether in ancient India or in 
ancient Germany, in village communities. Each 
community owned its tract of land, marked off 
into three marks — the common or untilled land, 
the village mark where each family had its house, 
and the arable mark, usually divided into three 
great strips or fields (one for a heavy crop, one for 
a light crop, one lying fallow, in rotation). Of 
these three fields each family had a portion, which 
seems to have been redistributed at intervals of 
years. The community was the general owner, 
but it allotted particular pieces to particular fami- 
lies for their houses permanently, it seems, for 
their tillage subject to change. The Hebrew pro- 
vision (Leviticus xxv. 8) that all village land should 
be returned to its original owners in the fiftieth 
year of jubilee, but that city house-land could be 
permanently sold, shows traces of the same sys- 



I20 ECONOMICS FOR THE PEOPLE. 

tern, but it does not seem to have lasted many 
generations beyond the conquest of Canaan. Un- 
der the feudal system, which fixed men on the 
soil, the occupier of land paid a tax or license or 
military service to the feudal owner, and competi- 
tive rent, depending on the productiveness of land, 
did not yet exist. 

Later on, as civilization progressed, land came 
more definitely into individual ownership, and men 
sold their holdings or let them for rent. But the 
community, or, as chieftainship developed, the lord 
of the manor, always held a superior ownership, 
which has come down to our day in the doctrine 
of " eminent domain." In Great Britain the Queen, 
in this republic the sovereign people, is supposed 
to own all the soil, private lands as well as public 
lands ; and it is by virtue of this that the State 
takes or grants to railroads the right of way through 
private lands, on payment of compensation fixed 
by a court, even though the owner does not want 
to sell. 

The law and custom as to the descent of land 
have great influence on the economic condition of 
a country. In France the Code Napoleon, requir- 
ing the division of all landed property (except the 



LAND AND ITS FEATURES. 121 

equivalent of one child's share) equally among the 
children, is said to have " changed the face of the 
landscape ;" it certainly promoted the tendency to 
small holdings, which has given France 5,500,000 
farms, 5,000,000 of them under one hectare (six 
acres) each. Entail — the right to fix the owner- 
ship of lands through successive generations — is 
now abolished in most civilized countries, but the 
practice of primogeniture, or descent by oldest son 
when no will is left, and the great legal costs in 
conveying land, have combined to keep the land 
of Great Britain and Ireland in few hands. Out 
of 72,000,000 acres, not common or waste lands, 
with a rental valuation of $650,000,000, one half 
(40,000,000 acres) is owned by 2238 people ; 41 
have holdings of over 100,000 acres each, aggre- 
gating 9,000,000 acres, 10,888 holdings of over 
10,000 acres, and 314,703 include all of one or more 
acres. In this country land is plenty and transfer 
is easy, and most of the States prohibit devises 
beyond 21 years from the death of heirs living, 
and divide intestate (unwilled) property equally 
among children. The United States, accordingly, 
had, in 1890, 4,564,641 farms, comprising 623,218,- 
619 acres and averaging 137 acres each, of which 



122 ECONOMICS FOR THE PEOPLE. 

1,318,521 are under 50 acres and 31,546 over 
1000 acres. The individual ownership of land, and 
its division into many holdings not too small to 
pay, has usually been found to be the most pro- 
ductive system, though the introduction of ma- 
chinery on a huge scale on the great farming 
plains of the West is producing new results. 

Land is not only limited in quantity, but it is 
limited also in quality or power of production. Its 
natural productiveness may be raised by careful 
tillage and use of fertilizers, so that an acre which 
would naturally produce only 8 bushels of pota- 
toes may produce 12. But a point is presently 
reached where it costs more labor to raise the ex- 
tra bushel of potatoes than the bushel is worth ; 
at this point, if ten men have been working on a 
potato-field, the labor of an eleventh man will not 
get one-tenth more, and so each worker averages 
less. This principle is known as " the law of di- 
minishing returns." It holds also in machinery to 
some extent, for it costs more coal to get the 
twentieth knot of speed out of a fast steamship 
than for any two or three knots at less speed, but 
in manufacture more machines can commonly be 
made until there are enough to produce all that is 



LAND AND ITS FEATURES. 1 23 

wanted. But land cannot be increased in quanti- 
ty, and the law of diminishing returns is a peculiar 
difficulty. It led to the doctrine of Malthusian- 
ism, named from the English economist Malthus, 
which points out that population tends to increase 
geometrically, doubling every twenty- five years, 
and food only arithmetically, so that the race faces 
starvation, unless population is checked. But, as 
a matter of fact, the increase of food product has 
outrun the increase of population, and each gen- 
eration since Malthus's day has had more to eat 
than that before it. And it is now claimed that 
by treating the soil as a laboratory instead of as a 
farm, and obtaining the free nitrogen of the air by 
means of plants such as Indian - corn, we can in- 
crease the supply of food almost indefinitely. 

Thus far, better farming has increased remarka- 
bly the agricultural product per acre. England, 
in the fourteenth century, used nearly all its ara- 
ble land to support 2,5(X),ooo people, an acre pro- 
ducing only 8 bushels of wheat from 2 bushels of 
seed ; in the eighteenth, 7,500,000 were support- 
ed more comfortably, the product being 20 bush- 
els ; less land is now cultivated, but the product 
is nearly 30 bushels. France, in the seventeenth 



124 ECONOMICS FOR THE PEOPLE. 

and eighteenth centuries, with a population rising 
from 12,000,000 to 19,000,000, obtained only 9 
bushels to the acre, and every third year went hun- 
gry ; her product, with double the population, is 
now 15^^ bushels, which, with her imports, enables 
each person to consume more than 21 instead of 
less than 14 bushels per year. 

While the original value of land is a boon of 
nature, a piece of land acquires an added value in 
two ways; first, through its direct improvement 
by cultivation, so that it becomes in this sense " a 
manufactured tool " improved in use — " the great 
savings-bank " through which each generation be- 
queaths a large part of its gains to the next; 
secondly, through its indirect advance with the 
progress of society and the new demands as " the 
country grows up to it." The thin, warm soils 
near watercourses — first cultivated, as Henry C. 
Carey points out, by new settlers, because more 
accessible — are made more and more productive 
by the use of fertilizers ; the richer soil of swamps 
or forests must be drained or cleared by the labor 
of men ; in our Western States many lands de- 
pend on artificial irrigation for almost their whole 
productive capacity. All these are examples of 



LAND AND ITS FEATURES. 125 

direct imprbyement by the individual cultivator. 
Where a man owns his farm, this work is so much 
capital put into his land instead of into the sav- 
ings-bank. It may thus be said that the final value 
of a piece of land on which rent is to be paid is 
made up of three elements, contributed by (i) nat- 
ure, (2) society, (3) the individual improver. 

The increase in the value of a piece of land 
caused by " society," usually called the " unearned 
increment " because it is not earned by the holder 
of the land, comes partly from the increased de- 
mand for product as a community develops, partly 
from the safety in producing which grows with 
law and order under good government, but chiefly, 
in the case of agricultural lands, by the ease of 
access which, in bringing a market near to a piece 
of land by means of good roads and of railways, 
practically brings the land to the market, and in- 
creases the return by decreasing the cost of trans- 
portation. In the case of the small pieces of land 
productive for manufacturing purposes, and in the 
smaller pieces productive as stores and shops for 
business purposes, the value added by society be- 
comes greater and greater. When we come to 
city lands used for residences, not business pur- 



126 ECONOMICS FOR THE PEOPLE, 

poses, the natural element of value sinks almost 
out of sight, productiveness is not considered, and 
accessibility and fashion, purely social or mental 
elements, are the chief elements of value. The 
city of Chicago, where 500 acres were offered in 
1841 for $5300, has now a land valuation of over 
$5o,ooo,0(X), mostly from " unearned increment." 
Land in the heart of London is said to have in- 
creased a thousandfold in value in 1 50 years. The 
amount of land withdrawn from production for 
residence use is not, in this country, very large ; 
the 11,483,318 dwelling-houses (housing 5| per- 
sons each, being 12,690,152 families averaging 5 
persons each) and other buildings in the United 
States would occupy about 600 square miles, or 
half the State of Rhode Island, and the auxiliary 
ground would probably take but a fraction of 
Connecticut. 

It has been pointed out by Adam Smith and 
other economists that the general price of land is 
low when interest is high, that is, when capital is 
scarce. The reason is that productive land can 
be fully developed only by the help of capital ; 
and when capital is not easily to be had, either 
because manufacture is diverting it from agricult- 



LAND AND ITS FEATURES. 12/ 

ure, or for other reasons, the land cannot be 
worked to full advantage and has for the time 
less value. 

The census estimate (1890) of the total property 
in the United States ($65,037,000,000) assigns $13,- 
279,000,000 to farms, of which four fifths is sup- 
posed to be land-value ; $26,265,000,000 to business, 
residence, and other real estate, of which one-half 
to two-thirds is land-value; besides $8,685,000,000 
to railroads and equipment, and $1,291,000,000 
to mines and quarries. The value of the land, as 
improved, would be thus near $30,000,000,000, or 
nearly a half of our total property. It is asserted 
by investigators of the subject that " universally 
the market value of the aggregate of land and 
that of the aggregate of productive capital are 
equal." 

The total area of the United States, omitting 
Alaska, is 2,970,000 square miles, with an average 
of 21 1 persons to the square mile. Of this about 
one half, 1,500,000, is considered arable land ; 
973,700 is already occupied as farms (558,700 im- 
proved and 415,000 as yet unimproved). Alaska, 
with its 531,409 square miles, brings the total area 
to 3,500,000 square miles. Of this, the United 



128 ECONOMICS FOR THE PEOPLE. 

States has held, unallotted, as public lands, 2,890,- 
000 square miles, or 1,850,000,000 acres, of which 
1,042,000,000 had been surveyed by June 30, 1895. 
This cost about $322,000,000, of which the greater 
part had been got back by sales. 

About 313,000,000 acres of surveyed land re- 
mained unsold, estimated with the unsurveyed 
land, excluding Alaska, to be worth $1,000,000. 



XVII. 

OF RENT, AND THE POSSIBILITIES OF ITS 
ABOLITION. 

Rent is the charge paid for the use of land. 
The man who in some way has obtained actual or 
legal possession of it will not let another man put 
his labor upon it to make its potential values act- 
ual values, by raising potatoes, or digging gold, or 
building a mill alongside the stream which runs 
through it, without paying rent. Now, if a farmer 
wants to grow potatoes, and there are two acres 
of land to rent, one of which will grow three times 
as many potatoes as the other with the same out- 
lay for labor, fertilizers, etc., he can afford to pay 
three times as much rent for the first. The high 
rent does not add to the cost or price of the pota- 
toes, because what is added on each bushel in rent 
is saved on each bushel in labor, etc. There is per- 
haps another acre so poor that " it does not pay to 
grow potatoes on it unless you get it for nothing." 

9 



130 ECONOMICS FOR THE PEOPLE. 

This pays no rent : it is what economists call " no- 
rent land." Thus rent, high or low, is the meas- 
ure of the increased productiveness of a piece of 
land over no-rent land, and it does not affect the 
price of products. This is known as Ricardo's 
doctrine of rent, though a Scotchman named An- 
derson preceded that great English economist in 
stating it. Superior land is like labor-saving ma- 
chinery : the cost is saved in facility of production. 
This holds true even in city rents ; Mr. Stewart's 
great store in New York never charged higher 
prices for goods, though the land was among the 
most valuable in New York, for the reason that its 
situation made it very productive of trade. So 
many people came there to buy that the big rent, 
divided among all the purchases, came to no more 
than the smaller rent of other stores. 

There may be land close by which produces 20 
bushels of wheat, and land far off which produces 
22 bushels. If it costs the value of two bushels to 
bring the 22 to market, the land close by and the 
land far off are of exactly the same renting value. 
Thus accessibility, or nearness to a market, is 
equivalent to so much greater productiveness, and 
distant land is, in the economic sense, poorer land. 



OF RENT. 131 

The price of wheat, or of any agricultural product, 
being determined by the cost of the part produced 
at greatest disadvantage, according to the first law 
of price, will depend on the cost of that produced 
on the poorest or most distant land. The true 
rent of any given piece of wheat-land, accordingly, 
would be the difference between the general price 
of wheat and the cost of producing and getting 
it to market from that piece. If a higher rent is 
charged, farmers cannot afford to hire it to raise 
wheat. They must either raise a more valuable 
crop than wheat, or not hire the land, or lose 
money. Of course this general law is much modi- 
fied on particular pieces of land by special circum- 
stances. 

When the fertile wheat-fields of our great West 
were opened up, and the railways brought them 
close to the seaboard, the poorer lands East went 
out of cultivation, and the price of wheat went 
down. The deserted farm-houses of the New 
Hampshire hills and in the Connecticut valley in 
Massachusetts tell a part of this story. Massa- 
chusetts, which produced 119,783 bushels of wheat 
by the census of i860, produced only 181 3 by 
that of 1890, and the other Eastern States reduced, 



132 ECONOMICS FOR THE PEOPLE. 

or increased but little, their acreage and product. 
In England the farmers could only afford to culti- 
vate the better wheat-lands and to pay a lower 
rent for these. But the existence in England of 
long leases or customary rents, and the great value 
set on land for manufacturing use and for social 
reasons, made landlords unwilling to so reduce 
rents; hence the great dissatisfaction among the 
English farming classes. This is the key to the 
great influence of our far West upon the agricult- 
ural holdings of England and our Eastern States. 
The effect of the increasing wheat crops of India 
and Russia upon us is not yet fully developed. 

The free operation of the economic laws of rent 
is restricted very much by the tenure of the let- 
ting. The labor and fertilizers a man puts upon 
land do not come out again in the first crop or in 
the year's crop ; they are more or less permanent 
•* improvements." So in still greater degree are 
the fences and buildings necessary in cultivating 
the farm. On yearly tenure or short leases the 
tenant must therefore pay a lowered rent, or re- 
frain from improving the land. In New Zealand 
each tenant has the right of purchase at a fixed 
price, and can therefore do his best for the land. 



OF RENT. 133 

In England the landlord makes most of the im- 
provements, and the tenant is in a measure pro- 
tected, even in yearly tenancy, by custom and 
what is called " a good understanding." In the 
north of Ireland the custom called *' Ulster tenant- 
right " binds landlords not to dispossess a tenant 
so long as he pays his rent, and it permits the ten- 
ant to realize on his improvements by selling his 
tenant-right to another person acceptable to the 
landlord. In other parts of Ireland much bad 
farming, bad politics, and bad blood have come 
from the ill understanding on this point — the ex- 
haustion of land and evasion of payments on one 
side, and rack-rents and summary eviction on the 
other. America has the great blessing of absolute 
free -trade in land, so that each tenant makes his 
own bargain for both price and time of his letting ; 
but as only a small percentage of the 4,700,000 
farms in this country are rented for money, the 
question has not become of great importance here. 
Farms worked on shares number more, one half 
or one third the crop being paid for the use of the 
land, buildings, etc., and this system, called "me- 
tayer rents," exists in many of the older countries. 
Rent, being the greater productiveness of the 



134 ECONOMICS FOR THE PEOPLE, 

land rented above the poorest land actually cul- 
tivated, tends to increase, as increasing demand 
(by increase of population or of wants otherwise) 
brings poorer and poorer land under cultivation. 
When all the arable land in the world is taken 
up, that land which can only be made to produce 
a bare subsistence for the laborer becomes the no- 
rent land, or standard from which rents count, be- 
cause from it the laborer gets no surplus above 
bare subsistence to pay rent. If rent were paid 
he has not enough to live on, and as there is no 
cheaper land he would die. But still the Ricardo 
doctrine of rent shows that rent would not be a 
part of the price of agricultural product, because 
it is only the equivalent of saved labor, and the 
extreme statement is made that if the whole 
$200,cxx),ooo paid in England as rent for culti- 
vated lands were remitted, it " would not add a 
pinch of flour to the sixpenny loaf." For the 
price of bread is not made by the English farmer, 
but from the far-off wheat-fields of Dakota, with 
which he must compete. The remission of rents 
would be to the English farmer so much gain, 
which for the first season he would gladly pocket 
himself. At once, therefore, rents would again 



OF RENT. 135 

commence; the landlord would demand part of 
this gain, which is rent, or the tenant would sub- 
let and live on the gain, receiving rent instead of 
paying it. So long as some land is better than 
other, and on this better land labor is saved, the 
price of this labor will, in the order of nature, be 
somehow paid as rent. If the whole world were 
redivided into equal lots, at no rent or equal rent, 
the rent process would instantly recommence, be- 
cause each person would want the better lands. 
If all land were equally productive and equally ac- 
cessible there would be no rent till it was all occu- 
pied, at which point those who had no land would 
be ready to buy or rent from those who had. 

There have been many plans to abolish private 
ownership in land, and so get rid of rent. But rent 
cannot be got rid of, for so long as one piece of 
land is better than another, it would be better 
worth having. It is as true of land as of any other 
kind of property, that if it were communistically 
redistributed at any moment, the men with more 
brains or industry in a time of peace, or of more 
force in a time of war, would presently get hold 
of more land or better land than the men of less 
brains or less force. 



136 ECONOMICS FOR THE PEOPLE. 

"The nationalization of the land," advocated by 
Henry George in " Progress and Poverty," is best 
stated in his own words: "The remedy for the 
unjust and unequal distribution of wealth appar- 
ent in modern civilization, and for all the evils 
which flow from it [is], We must make land com- 
mon property. ... I do not propose either to pur- 
chase or to confiscate private property in land. . . . 
Let [present owners] continue to call it their land. 
Let them buy and sell, and bequeath and devise, 
it. We may safely leave them the shell if we take 
the kernel. It is not necessary to confiscate land; 
it is only necessary to confiscate rent. . . . Appropri- 
ate rent by taxation. . . . Abolish all taxation save 
that upon land values'' This, it will be seen, is not 
a scheme to abolish rent — for Ricardo's theory of 
rent is used by Mr. George as the groundwork of 
his argument — but to require private owners to 
pay the equivalent of rent to the Government as 
taxes. The private owner would not be deprived 
of return for the capital he had invested in build- 
ings or other improvements, but would be practi- 
cally a State -tenant, paying ground -rent to the 
Government on a perpetual lease, and perhaps 
sub-letting to other users or occupiers. This, Mr, 



OF RENT. 137 

George argues, would prevent the withholding of 
land from productive use, and prove the cure-all 
for our social ills. 

Herbert Spencer, in his "Social Statics," had 
already spoken of such a " change of landlords " 
as commanded by equity, consistent with the high- 
est state of civilization, and duly subordinate to 
the law of equal freedom. " Separate ownerships 
would merge into the joint-stock ownership of the 
public. . . . Stewards would be public officials in- 
stead of private ones, and tenancy the only land 
tenure." John Stuart Mill looked forward to such 
a tenure, to be brought about by the purchase of 
vested rights by the State. The objection to Mr. 
George's plan is seen in the fact that the man who 
owns land to-day may have bought it only yester- 
day with the direct earnings of his labor, and the 
confiscation of rent would practically deny to him 
the benefit of his earnings, and thus subvert the 
foundations of all private property. Mr. George 
cites against this the fact that the freed slaves 
were not paid for by our Government during the 
war, and argues that the interest of the few must 
be put aside in the interest of the many. 

The economists who look upon Mr. George's 



138 ECONOMICS FOR THE PEOPLE. 

plan as indirect communism, nevertheless recog- 
nize the land question as one of the most serious 
problems in Economics. As we cannot increase 
the quantity of land, it is important that what 
there is should be used so as to produce most, 
and that the holding of arable lands unused 
should be discouraged. Most economists agree 
that land, and especially the unearned increment 
of value, is a proper object for the chief burden of 
taxation, a doctrine advocated by Mill as presi- 
dent of the Land Reform Association. The tax- 
ation of all land, unimproved on the same basis as 
improved, so that it cannot be *' held for a rise " 
without cost and thus accumulated into great fort- 
unes, is likely to be the chief method of raising 
revenue in the future. 

Land, then, is the first element of production, 
the sine qua non : in distribution it claims its share 
as rent, however this rent may be concealed, or 
cloaked, or called by other names, or temporarily 
balanced by confiscating taxation. Without land 
labor has nothing from which to produce. The 
earth is, in truth, the mother of us all and of all 
our wealth. 



XVIII. 

CAPITAL AND INTEREST. 

When a settler, far off from home or friends, 
and dependent for his food on the little farm he 
has cleared, denies himself the extra loaf of bread 
he would like to eat, that he may save the wheat 
as seed for next year's crop, he becomes in that 
measure a capitaHst, or owner of capital. Capital 
represents that self-denial in the past which be- 
comes the means of future prosperity; it is that 
part of wealth, i. e., of stored labor, used to pro- 
duce wealth. As we spoke of potential wealth, so 
we may speak of potential capital, the reserve 
which can be, but is not now, being used to pro- 
duce wealth. 

Capital is not a prime factor in production, be- 
cause it can always be analyzed back into land 
and labor ; but it is in one sense the most impor- 
tant factor, because it makes possible the higher 



I40 ECONOMICS FOR THE PEOPLE. 

industrial organization, and enables labor to work 
to the best advantage. It has been called " the 
universal motor," because it keeps everything go- 
ing. Without it each man would be obliged, like 
a savage, to dig or hunt his breakfast and his ma- 
terial before he could get at the rest of his day's 
work : there would be no division of labor, and 
each would work at his worst. 

Those kinds of capital which can be used for a 
long time over and over again — as a house, or me- 
chanical ''plant," or the road-bed of a railway — 
are called fixed capital ; those kinds which, like 
food, fuel, and material, are commonly used but 
once, and are destroyed in using, are called circu- 
lating capital. As a country is more civilized, the 
proportion of fixed capital increases, and particu- 
larly that kind of fixed capital which becomes 
literally common wealth — as good roads, bettered 
watercourses, and sanitary improvements. To in- 
vest capital is to exchange circulating into fixed 
capital. But there is in fact no strict line, for 
many things are destroyed by or wear out after a 
few usings, as a file, and are between the two. So, 
also, it is not possible to draw a strict line be- 
tween wealth used as capital or not used as capi- 



CAPITAL AND INTEREST, I4I 

tal : a man's breakfast may or may not be turned 
into a day's work. 

It is a mistake to confound capital with money. 
Capital is not merely money, but wealth, common- 
ly represented in terms of money ; it is paid for 
by Interest y which pays not for the use of money, 
but for the use of those things which money buys. 
These things are, in general, subsistence (including 
food, clothing, dwelling, fuel), tools (which may be 
a hand-tool, or a steam-engine, or a factory), mate- 
rial. A man first uses his savings to make sure 
of to-morrow's food f next for clothing ; next for 
a place to live in. These secured, he gets tools, so 
as to work with advantage ; last, he buys materi- 
als on which to use them. The reason that capi> 
tal is commonly confused with money is that a 
borrower, wanting food, tools, or materials, finds 
it more convenient to get the money and choose 
these for himself than to have the articles them- 
selves loaned to him. 

It is estimated that the saved wealth of a coun- 
try, aside from what is deposited by means of im- 
provements in that great savings-bank, the land, 
rarely exceeds two to three times its annual pro- 
duction, and that, as to food, the world is thus al- 



142 ECONOMICS FOR THE PEOPLE. 

ways within a year or two of starvation should 
production cease. The aggregate of productive 
capital, it is also reckoned, approximates the total 
value of land, which naturally rises as increased 
capital increases the demand for it. The cen- 
sus of 1880 estimated the total property of the 
United States, land included, at $65,037,000,000. 
Our productive capital is probably within $35,000,- 
000,000, while our annual product, Mr. Atkinson 
concludes, is about $14,000,000,000. If all the 
property in the United States were distributed 
communistically among its people there would be 
about $1030 each, or of annual product about 
$200 each. The census reports the total invest- 
ment (chiefly fixed capital) in manufacturing indus- 
tries as $6,525,156,486, and the cost of material 
(circulating capital) as $5,162,044,076, which, 
with $2,283,216,529 wages, gave a product of 
$9,372,437,283. 

The man who by self- denial saves capital — as, 
for instance, seed-corn — may either plant it him- 
self or lend it to others to plant. If he refrains 
from using it himself, he is entitled to compensa- 
tion for this further self-denial. The man who 
borrows does not borrow unless he expects to 



CAPITAL AND INTEREST. 143 

gain, and he is willing to make payment. This is 
interest^ usually stated in money terms for a defi- 
nite period, as 6 per cent, per year, i. e., for every 
$100 worth borrowed $106 is to be returned at the 
end of a year, or $1 12 at the end of two years. In 
"compound interest" the principal and interest 
are added together, as a new principal from which 
interest is reckoned, so that at the end of the sec- 
ond year 6 per cent, is to be paid on $106, making 
$112.36 to be returned. 

The notion that capital is money only, coupled 
with Aristotle's doctrine that money is sterile or 
unproductive, has led to the general outcry against 
interest, of which thriftless or dishonest or unsuc- 
cessful men are glad to take advantage to avoid 
paying debts. The Mosaic rule that the Jews 
should not take interest from their poor country- 
men — really a direction to them to be charitable 
— and the application by the Church Fathers of 
the words " gatherest where thou liast not sown " 
to interest in general, led to a religious prejudice 
against interest, which was held by Luther. Cal- 
vin, however, saw that money is borrowed " as an 
instrument of production : it is not, then, from the 
money itself that the profit comes, but from the 



144 ECONOMICS FOR THE PEOPLE. 

use that is made of it ;" and his influence has help- 
ed to change the religious sentiment as to in- 
terest. 

Usury laws, providing forfeiture of the loan or 
other penalties for taking more than a specified 
rate of interest, were early enacted by most na- 
tions ; but since the rate of money is regulated 
not by law, but by the demand for the things 
money buys, these laws only made money harder 
to get, because of the added risk, increased instead 
of lowering the actual interest, and gradually fell 
into disuse or were repealed. Usury laws sup- 
posed to protect the debtor were often balanced 
by imprisonment for debt, supposed to protect the 
creditor, which were equally useless and harmful. 
In Rome the debtor became the slave of the cred- 
itor : as much as 48 per cent, interest was exacted 
by Brutus himself; and when the later magis- 
trates " flattered the people " by prohibiting in- 
terest and abolishing debt, usury became frightful. 
On the contrary, Solon's laws gave Athens free- 
dom of contract in borrowing and abolished debt- 
slavery, and though the rate of interest was high, 
Greece remained industrially prosperous. In Eng- 
land, Edward VI. prohibited interest ; Elizabeth 



CAPITAL AND INTEREST. I45 

permitted 10 per cent., and thus greatly promoted 
trade ; a statute of Anne voided contracts at above 
5 per cent. This law itself proved void, and was 
repealed piecemeal, and in 1854 the last vestige 
of usury law was removed, except in regulations 
as to pawnbroking. In this country all the States 
define, usefully, a legal rate of interest, the rate to 
be paid where no contract is made, varying from 
5 per cent, in the older to 10 per cent, in the Far 
West States. Most of them fix also a usury limit, 
from 6 to as high as 18 per cent., the last in Idaho, 
where usury is a misdemeanor punishable by fine 
and imprisonment. ' 

A man is of course less willing to lend his capi- 
tal when he is not quite sure he will get it back. 
Sometimes, as usually at the West, he is secured 
by mortgage on real estate — the word meaning 
"dead -pledge," because on non-fulfilment of the 
bond the pledge, or property, became dead to the 
mortgagor and passed to the mortgagee ; some- 
times, as usually at the South, by pledge of crops 
on which advances are made. In such cases the 
risk depends much on the facility which local laws 
and public opinion give to the realization of the 
pledge. If there is doubt as to the security of the 
10 



146 ECONOMICS FOR THE PEOPLE. 

capital, the leaner adds insurance, and so makes 
interest higher. On Wall Street, when a particu- 
lar stock was '' short," that is, the demand ahead 
of supply, and the risk of losing great, as much as 
I per cent, a day has been paid for the loan of that 
particular stock, when money itself on good secu- 
rity was under 5 per cent, a year. Insurance is a 
sum set aside to balance the risk of loss ; when it 
is paid to a fire-insurance company, the company 
undertakes to make good your house if it burns 
down; more often, a man 'insures himself" by 
charging a little more than he would in a sure 
transaction. Thus rent is a little higher because a 
bad tenant may abuse the land ; labor is a little 
higher for day's work than if work is made sure 
for a whole month ; but, most of all, insurance is 
felt in increasing interest. Moreover, " capital is 
timid," and it is estimated that "the unwilling- 
ness of capital to emigrate," i. e.^ to take risks in 
foreign countries, often adds 2 per cent, to true 
interest. Another element added to true interest 
is the cost of commissions for the work of the in- 
termediaries who obtain the money and investi- 
gate the security offered. Were it not for these, 
the rate of interest the world over would be much 



CAPITAL AND INTEREST. 147 

nearer an average rate than wages can be, because 
circulating capital is more easily transported than 
labor. 

Interest is high in new countries, first of all, be- 
cause labor can be used to great advantage if food 
and tools and materials can be got ; for the use of 
these, therefore, a high charge can be paid. On 
the other hand, in new countries nobody has had 
time to save ; capital is scarce, and must be brought 
from afar. A high rate of interest attracts capital, 
and the more capital flows in the more interest is 
lowered. A high rate of interest carries therefore 
its own cure. But this is checked, and interest, 
secondly, raised, by the tendency of a borrowing 
community to make laws against the creditor 
class, so that a high insurance is added to inter- 
est. Thirdly, these countries are distant from 
centres of capital, and their conditions little known, 
so that commissions are high. Many Western com- 
munities, in trying to make interest cheap by law, 
make it cost more. Stable government, good laws, 
and commercial honesty are what give a commu- 
nity the lowest market rate of interest. Thus the 
United States can now borrow on its bonds and 
Great Britain on its ** consols" (consolidated bonds) 



148 ECONOMICS FOR THE PEOPLE. ■ 

at 3 per cent., while repudiating States are check- 
ed in development by paying the penalty of enor- 
mous rates of interest. 

Proudhon, the French socialist, who warred 
against capital and held that " property is rob- 
bery," organized a " People's Bank," which was to 
abolish interest proper, to get rid of insurance by 
dividing the loss among all the depositors, and to 
bring the rate of interest down to the mere cost 
of administration. Before it got to that point the 
bank failed, just as the man's horse died when he 
had him down to one straw a day and expected 
him to live on nothing to-morrow. No scheme or 
law can make people lend things for nothing. The 
increasing savings from the increased productive 
power of the world, the greater security of prop- 
erty, and the new facilities of intercommunication 
are, however, steadily lowering interest. As the 
world progresses, wages, the relative share of la- 
bor, are rising, and interest, the relative share of 
capital, is falling ; and it is not progress, but mis- 
taken legislation, that acts against industry. Capi- 
tal, in fact, enables labor to earn more with less 
effort in the same time. Thus capital is the friend 
of labor. Its function is to make labor more pro- 



CAPITAL AND INTEREST, 149 

ductive, by enabling it to work to more advantage, 
under better conditions, with better tools, and es- 
pecially to make possible the division of labor. It 
enables labor also to avail itself of the forces of 
nature. It enables the laborer to earn a full dol- 
lar where otherwise he would only have earned 
a half-dollar, and it gives him for his dollar, in 
product, more than twice as much as he could 
have got for his half-dollar. It is not capital or 
interest, but the abuse of riches, that invites an- 
tagonism from labor, as we shall see later on. 



XIX. 

OF LABOR AND THE DIVISION OF LABOR. 

The prime factors of wealth are Land, from 
which we get the original material, and Labor, 
which gives to that material most of its final 
value. If land is the mother, labor is the father 
of wealth. Capital, which is past labor stored, 
makes labor more productive by enabling it to 
use the forces of nature, by giving it better con- 
ditions of work, and by promoting the division of 
labor. Brains, which is head labor, looking into 
the future, makes labor more productive by di- 
recting it so as to avoid waste, to work to most 
advantage, and to meet the conditions of the mar- 
ket. Both help labor to " a fair chance." With- 
out their aid labor is like a workman without tools, 
and blind. When, under fair conditions of land 
tenure, labor, capital, and brains are in harmony, 
production is greatest, and there is more product 
to be shared among all. 



OF LABOR. 151 

The progress of industry consists in the increase 
of production from a given amount of human la- 
bor. The great steps forward in civilization have 
been the harnessing of the forces of nature to do 
work for men — the discovery of fire, the taming 
of animals, the use of wind and water power, the 
production of gunpowder, the invention of the 
steam-engine (which alone has multiplied the 
working power of the world a hundred-fold), and 
the application of electricity. Without machin- 
ery, which is one form of capital — the stove, the 
wagon, the windmill, the ship, the water-wheel, 
the blasting-drill, the engine, the electric battery — 
labor would still be in its infancy, earning only the 
wages of a child. Alongside of these improve- 
ments has been the bettering of the conditions of 
labor — in housing, clothing, and heating, so that 
there may be no waste of fuel in the human ma- 
chine ; in better and cheaper food, in improved 
hand -tools, last and best in developing man as 
man, so that his body becomes the better servant 
of his higher nature. Finally, the division of la- 
bor, so that each man may do that work by which 
he can produce most, has been the crowning tri- 
umph of economic progress. 



152 ECONOMICS FOR THE PEOPLE. 

The division of labor commenced, with the sav- 
ing of capital, in very early times, when one man 
ceased to make everything he needed for himself, 
and by doing fewer things more effectively saved 
a surplus which he exchanged for other things 
made by other men. Thus he learns his one trade 
earlier and easier. He becomes more skilled in 
one kind than he could be in several kinds of 
work. He saves the time he would lose in pass- 
ing from one work to another. He knows his 
work so well that he begins to make little im- 
provements and inventions that help it, as the boy 
Humphrey Potter tied a string from the stopcock 
to the walking -beam of his steam-pump, and so 
helped to make the steam-engine of to-day. The 
strong man can do the hard work, and leave the 
easier work to the weak, as women and children. 
In a hundred ways the division of labor has ful- 
filled the great economic purpose of getting most 
with least work, until at last we have, with the 
help of machinery, the vast industrial organization 
which exists to-day, an organization of the highest 
type and of the greatest producing power. In the 
great factory which makes only one kind of cot- 
ton cloth, great numbers of men work with their 



OF LABOR. 153 ; 

hands to do one thing useless by itself; others ; 
serve as watchmen ; others oversee ; others keep 
books ; others exchange the product ; others lend ] 
the money to buy material and tools, to hire build- 
ings and land ; while somewhere there is the hard- i 
worked brain or brains, the most decisive factor i 
of all, without which the organization would no \ 
longer exist. The result is that one man's work i 
makes as much cloth as fifty did of old at weaving \ 
homespun ; each yard of cloth costs less, but the j 
laborer, working fewer hours, earns more each day. i 
It seems to be a law of nature that the finer and ! 
more complex is an organization, and the greater j 
its power, the more danger is there in its breaking | 
down. A chain is only as strong as its weakest I 
link. The best steam-engine may smash itself to I 
bits if a tiny pin gives way. The work of years in j 
undermining Hell Gate would have been lost if I 
a careless workman had neglected the joining of I 
a single electric wire, or if the signal of destruc- ; 
tion had been prematurely made. So the dan- j 
gers before our highly organized industrial system 
are very great. A new improvement throws men | 
out of work for a time ; the man who does only I 
one thing finds it difficult to earn a living other- \ 



154 ECONOMICS FOR THE PEOPLE. 

wise ; or if the brain dies, the hands stop. The 
remedy is not in smashing the machine, but in 
taking every care that it works well. We shall 
see what this means later on. 

The great law of the division of labor is that 
each man shall work to the utmost of his power, 
by using his skill at its best. It is based on dif- 
ferences between men in their working and earn- 
ing power. Production varies with both quantity 
and quahty of work; the industrious man pro- 
duces more than the lazy one, the skilled worker 
more than the unskilled. Each worker is to learn 
what he can do best, and do that. Thus he con- 
tributes most to the general welfare, and earns 
most for himself. This applies to nations as well 
as men. The higher the capacity of a man or of 
a people, the less can either afford to do the lower 
grades of work. The farmer cannot afford to grow 
one clip of wool on an acre that will grow twenty 
bushels of wheat. The merchant cannot afford to 
use a $5000 man at the work of a $1000 clerk, or 
a $1000 clerk at the work of a $200 boy. He 
could himself sweep out the store quicker than 
the boy, or sell goods faster than his best clerk, 
but he cannot do the lesser work if he is to have 



OF LABOR. 155 

time and force for the greater. Thus, also, a Mid- 
dle State with farm -lands lets wool- raising go to 
the grazing lands of the Far West States. One 
nation imports from another products which it 
cannot raise without giving up more profitable in- 
dustries. A race capable of higher work uses an- 
other for its lesser service, as the Irish, first doing 
the lower work for Americans, is now rising in the 
social scale and seeing its work taken up by the 
Chinese. This is the key to domestic service ; the 
attendant who by working a day saves you an 
hour enables you to produce tenfold. , 

In almost every product labor forms the great 
part of the cost. In one sense almost all value 
comes from labor. A horseshoe is hammered 
from a bar of iron, heated from a coal-fire, by the 
blacksmith's labor; but the hammer and the an- 
vil, the iron and the coal, are themselves the prod- 
uct of labor, and the very mines from which the 
ore is dug get a great part of their value from the 
general labor of society which has made them ac- 
cessible. So, too, with the products of the farmer ; 
not only his labor on the crops, but the labor 
which grew the seed, which made the tools, which 
ground the fertilizers, enters into his bushel of po- 



156 ECONOMICS FOR THE PEOPLE. 

tatoes. It does not follow, however, that any 
product — for instance, a ton of pig-iron — is in any- 
practical sense all labor. The rent of the mine, 
the profits of the mining operator, of the trans- 
portation company, and of the furnace-man, remain 
a considerable proportion of the actual price. 

In specific industries, however, the proportion 
of labor to material, as that industry receives it, 
is widely different. According to the census of 
1890, in brickmaking, out of $67,770,695 annual 
product, $32,695,189 (or $300 to each worker) was 
wages, and only $12,639,597 material, besides the 
return on $82,578,566 capital; and in watches, 
out of $6,051,066 product, $3,688,927 (or $552 
to each worker) was wages, and only $995,740 
material, besides the returns on $10,106,114 capi- 
tal; while in malting, out of $23,442,559 product, 
but $2,103,200 (or $569 to each worker) was 
wages, against $17,100,074 material, besides the 
return on $24,293,864 capital. Our total annual 
manufacturing product was put at $9,372,437,283, 
of which (there being no report of rent) $5,162,- 
044,076 was material, $2,283,216,529 wages, and 
(at 5 per cent, on the $6,525,156,486 capital in- 
vested) $326,250,000 interest. In this reckoning 



OF LABOR. 157 

material is counted several times, e.g.^ as wool, 
cloth, and clothing; or as ore, pig-iron, bar-iron, 
and the finished machine. It is evident that 
when the material is very cheap, as is clay, or 
very little of a valuable material is required on 
which to put skilled labor, as in watch -making, 
the proportion of wages to product is high ; when 
the material is valuable, as barley, and the labor 
little, the proportion of wages to product is low. 
The amount of time during which the material is 
finishing, and the cost of plant necessary for its 
treatment, also reduce the proportion of labor to 
capital. One of the best illustrations of the rela- 
tive total returns to labor and to capital is found 
in the statistics of M. Godin's great co-operative ex- 
periment, the Familistere at Guise, France, where 
the remuneration to labor is found to be eight 
times that to the capitalist. 

As we rise in the scale of industry the original 
material bears a less and less proportion to the 
labor involved. There is, finally, one great excep- 
tion to the general truth that labor must have ma- 
terial from the earth from which to produce, and 
that is the immaterial labor of the producer of 
ideas. The work of the writer, the artist, the in- 



158 ECONOMICS FOR THE PEOPLE. 

ventor, is creation, the giving of material form to 
an immaterial idea. The consumption of brain- 
fibre or the food from which it comes, and of the 
paper and ink, the colors and the canvas, the 
metal, or what material it may be, is so incon- 
siderable as to be of no account. Yet a book, a 
painting, a piece of music, an improvement in ma- 
chinery, have the highest of exchangeable values. 
They are the divine instruments, the tools of God, 
by which humanity itself is shaped to fairer fash- 
ion. The invention of the cotton-gin and the 
writing of " Uncle Tom's Cabin " were chief fac- 
tors in making possible the abolition of slavery, 
and the Proclamation of Emancipation has added 
more to the economic progress of this nation than 
any aqt since the Declaration of Independence. 



XX. 

THE WAGES QUESTION. 

The share of Labor, in distribution, is Wages. 
Work done under direction earns wages ; directing 
work, as we shall see later, earns profit. The word 
Labor usually refers to work thus under direction. 
The "wages question" is, therefore, what is the 
proper share of the laborer, working under direc- 
tion, in the distribution of product ? There can be 
no more important question in a country organ- 
ized " for the greatest good of the greatest num- 
ber," in which wage -earners make up the great 
body of the commonwealth. 

The word WageSy unfortunately, is used both in 
a general sense to mean the pay of labor, whether 
by time, by piece, or by share of product, and in 
a specific sense to mean time-wages, or, as defined 
by Professor Sumner, "the payment per unit of 
time by the employer, in return for which the em- 



l6o ECONOMICS FOR THE PEOPLE. 

ploye agrees to use his productive powers during 
the time specified as the employer may direct." 
This lack of distinctive words has led to real con- 
fusion in arguments. It is, perhaps, most clear to 
use the word wages in the general sense, and the 
phrases time-wages, piece-wages, and share-wages 
for the different ways of payment. Time-wages 
may be by the hour, day, week, month, or year ; in 
comparing day-wages with year- wages, it must al- 
ways be asked how much of the year the laborer 
has had work. Piece-wages is the pay per article 
produced. Share-wages, which correspond to me- 
tayer rents, may be a share of the product itself or 
its equivalent in money ; this transfers to the la- 
borer a part of the risk usually taken by the em- 
ployer. The ''sliding scale" of payment in coal- 
mining, where miners get so many cents per ton 
when coal is at a stated price, and so much more 
when it is higher, is a combination of piece and 
share wages. The " truck system " of payment has 
no reference to any of these, but means that the 
employe is given orders for goods instead of mon- 
ey, a system so much abused by employers who 
were store-keepers and charged extortionate prices, 
that in some parts it is forbidden by law. 



THE WAGES QUESTION. l6l 

The confusion of time-wages and piece-wages, in 
reckoning the cost of labor, has created extraordi- 
nary confusion of the wages question. It is often 
asked, does price make wages, or do wages make 
price, e. g,^ does a factory girl get a dollar a day 
because a yard of cotton is ten cents, or is cotton 
ten cents because factory girls get a dollar a day ? 
The question is not rightly put, partly because 
price varies from cost with demand and supply ; 
partly because wages are only one element of cost ; 
but chiefly because it is time -wages which are 
here meant, and the cost of labor cannot be reck- 
oned from time -wages. The actual pay of any 
given laborer is determined by his productive 
power, the amount of product or number of pieces 
he can turn out in a given time. A man who can 
make two pair of shoes in a day will, in the long 
run, earn twice as much as a man who can make 
only one pair ; his pay, looking at piece - wages, 
would be the same, though his *' wages," in the 
sense of time - wages, would seem to be double. 
Two men of equal skill working in the same shop, 
under like conditions, will, as a matter of fact, earn 
about the same by the week's end, though one is 
working " by piece," the other " by time." But in 

II 



l62 ECONOMICS FOR THE PEOPLE. 

the case of two men working, as in different coun- 
tries, under quite different conditions of strength, 
industry, skill, tools, machinery, etc., time -wages 
will not be at all alike, though piece-wages may , 
be nearly the same. Thus an American shoe manu- j 
facturer, paying nearly double English time-wages, i 
gets shoes made for only 33 cents per pair which \ 
cost an English manufacturer 50 cents for labor, i 
Thus, also, an English manufacturer pays twice or \ 
thrice the time-wages of German, French, and Ital- ; 
ian, and yet finds the labor-cost less. American | 
labor, with its advantages of pluck, skill, and ma- i 
chinery, is at once the highest and the cheapest ' 
in the world. On such questions as the tariff we 1 
have been wasting words in talking about " wages," | 
meaning time-wages, and overlooking piece-wages. ' 
The higher time-wages in England and Germany ; 
show that the question is not one of "protection" i 
and free-trade. The question is always, how much \ 
can the laborer produce ? 

The fallacy of reckoning price or basing a cur- 1 
rency on " labor-value," so called, was shown when \ 
Robert Owen, about 1830, opened his "labor-ex- 
change" in London, and bought and sold goods 
with notes representing the " labor-value " (or num- j 



THE WAGES QUESTION. 163 

ber of hours' work) in each. His customers quick- 
ly used these notes to buy up all the desirable 
goods in his store, which, being left with a great 
stock of unsalable things, failed in a few weeks. 

Product pays all. Wages increase with product. 
These are the two main facts of " the wages ques- 
tion.** Out of product must come the returns to 
land, capital, labor, and the directing brains. Rent, 
the equivalent of labor saved, and interest, a pay- 
ment for help to labor, are comparatively fixed, 
and do not decrease the pay of labor. Wages re- 
main the chief and the most variable part of cost. 
Profit, the pay of the director of industry, is, we 
shall see, the difference between cost and price, 
involving the risk of loss when, for the time being, 
price falls below cost. Labor cannot get more 
than all there is to divide ; it gets less by the 
amount of rent and interest, and if there is no mar- 
gin left for profit, the employer is driven out of 
business, the demand for labor is less, and wages 
fall. Out of a fixed product, therefore, labor can- 
not get more unless the others get less, and in 
crippling them, labor cripples itself. Out of an 
increasing product, labor not only gets more, but 
gets a greater proportion, rent and interest being 



164 ECONOMICS FOR THE PEOPLE. 

the more fixed, unless the profit-maker gets the 
difference. But it is a fact in progress that ** in 
any given product, profits diminish, wages increase." 
Thus labor, paid out of product, gets more and 
more wages as product increases. 

For a long time English economists held that 
wages did not depend upon product, and could not 
exceed ** the portion of the existing capital availa- 
ble to pay labor/* which they called the Wage- 
fund. This was another of the mistakes which 
arose from the confusion of wealth with money. 
It was noticed that money was paid out for wages 
before the goods were sold or even finished. But, 
as a matter of fact, an additional value had been 
created by labor, greater than the amount of the 
wages, before the wages were paid, for payments 
are almost always, with such exceptions as a law- 
yer's retainer, made at the end of the day, the 
week, or the job, not at the beginning. The em- 
ployer may not have turned this added value into 
money, but he can usually borrow on or sell half- 
finished products, were it not that he prefers to 
wait to get the full price for the completed goods. 
Instead, therefore, of distributing the product of 
the work among his workmen as their wages, re- 



THE WAGES QUESTION, 165 

serving his own share, he pays the equivalent in 
money. But the greater the product of the day 
or the week the more wealth he has, the more 
money he can get, the more wages he can pay. It 
is true that a man must first eat his breakfast be- 
fore he can do his day's work, must have tools or 
machinery or a fit building to do his work well, but 
in no sense is the capital so employed distributed 
to him as wages. Each man begins on what has 
been previously stored, as in infancy he lives upon 
his mother's milk, but this has no relation what- 
ever to the payments made to him for work done. 
The Wage-fund notion lent itself to the mistake 
that the more workers the less would be the wages 
of each, and that one man could not get higher 
wages without another getting lower wages. If 
product, like land, could not be increased, the few- 
er people the more each would have, but product 
multiplies and so gives a larger share for each. 

It has also been said that labor is not paid out 
of product, because wages are predetermined by 
agreement. But the arrangement is based on the 
calculation of product, and is only another exam- 
ple of the commutation of indefinite shares for 
definite money payments found in rent and in in- 



1 66 ECONOMICS FOR THE PEOPLE. 

terest also. The risk is taken from labor, but the 
pay is all the same an advance estimated with regard 
to product. Always it is the product which pays. 
There has been much discussion among econo- 
mists as to whether labor is a " commodity," that 
is to say, whether the pay for it follows the ordi- 
nary laws of price for things sold in the market. 
The truth seems to be that, for the most part, 
wages are determined by these same laws, but that 
these laws are greatly modified by several distinct- 
ive elements : that while things merely deterio- 
rate by keeping, labor unused for a day is absolutely 
lost ; that the human machine is much more vari- 
able in its requirements and results (as food, con- 
ditions of work, and product) than any other ; and, 
above all, the human or mental element, in which 
emotions and affections play a part as strong at 
least as dollars and cents. " Man is of all lug- 
gage," said Adam Smith, " the most difficult to be 
transported." He gives '' hostages to fortune," said 
Bacon. He is anchored in his home. These con- 
ditions separate the real man from the thing or 
the " economic man," and give us reason to take 
care that our economic organization recognizes 
human distinctions. 



XXI. 

THE RATE OF WAGES. 

Wages cannot rule higher than the point at 
which an employer must stop work or lose money. 
Wages cannot rule lower than the cost of living of 
the laborer with so much of a family as will keep 
up the supply of labor for the immediate future. 
Employers, nevertheless, often keep mills going at 
temporary loss, because of sympathy with their 
employes, or because it would be still greater loss 
to let the " plant " lie idle, or in the hope of cov- 
ering the loss by early gain, and laborers some- 
times find themselves compelled to work below 
the cost of decent maintenance, using up their 
savings or running into debt, rather than to be 
without work at all. A man, wife, and two or more 
children (so that at least two shall grow up) must 
be provided for in average wages, except so far as 
women and children help to earn. The census re- 



l68 ECONOMICS FOR THE PEOPLE. 

turns show that each worker supported, on the 
average, a group of three persons. The average 
wages in all American manufactures were $484, or 
in 1890 about $1.60 per working-day. 

The lowest time-wages in the world are those of 
the common laborers in China and on the African 
coast, who live on a few handfuls of rice and earn 
a few cents a day. This ill-fed and ill-paid labor 
cannot compete with the best-paid American la- 
bor; the "Fabrica de Tocuyos," at Lima, Peru, 
which made coarse cottons from Chinese labor at 
$4 per month, found it difficult to compete in Peru 
with New England cottons whose price was raised 
by the high Peruvian tariff. A half-fed horse will 
do only half-work. So with a man. Ten laborers 
in Ireland raised less than four in England. Bras- 
sey, building the Paris and Rouen railway in 1842, 
employed 10,000 men, of whom 4000 were taken 
at great expense from England ; side by side, in 
the same quarry, Frenchmen worked at three 
francs, Irish at four francs, and English at six 
francs a day, and it was the English work that 
cost least. On East Indian railways, coolies, liv- 
ing on two pounds of rice and a pinch of curry for 
4 to 6 cents a day, and knocking off work when 



THE RATE OF WAGES. 169 

their wants were supplied, earned from 8 to 12 
cents for a day's work, yet for all but rough earth- 
work the cost of railway work proved the same in 
India as in England. In farming, it has been 
shown that two English mowers will cut as much 
grass as six Russian serfs ; under low time-wages 
the yield of crops in Russia is less than half that 
of England, and the smallest in Europe. 

" Experience teaches," says the younger Bras- 
sey, " that there is a most remarkable tendency to 
equality in the actual cost of work throughout the 
world." Where difference exists, it is usually found 
that the lowest labor - cost (piece - wages) is asso- 
ciated with the highest time-wages. Thus Eng- 
land, paying higher time-wages than France, Ger- 
many, or any other European country, commands 
the trade of the world, especially in manufactured 
goods. When we get our materials cheaper, the 
still higher time-wages of the United States will 
probably bring us much of England's export trade. 
" The higher wages of American labor," said Sec- 
retary Manning, *' are at once the secret and the 
security of our capacity to distance all competi- 
tion from ' pauper labor ' in any market." 

The laborer, selling his labor, seeks, of course, like 



I/O ECONOMICS FOR THE PEOPLE. 

any other seller, to get the full market-price from 
the buyer. The " heathen Chinee/' with his dread- 
ed " cheap labor/' soon learns to ask as much as the 
Irish washer-woman for washing a dozen of clothes, 
and as a domestic servant he gets $20 a month or 
more in California. This tends to equalize labor- 
cost by levelling wages up. 

Wages, nevertheless, vary in different countries 
or — often quite as much— in different parts of the 
same country, as well as in different occupations, 
according to various conditions, chiefly dependent 
on local conditions of supply and demand. The 
Labor Report of 1879 reported painters as earning 
$7 to $8 per week in Great Britain, $10 to $16 
in New York, $6 to $12 in Chicago. Carpenters 
in New York city are said to average $641 per 
year, and in New Jersey, just across the river, $476. 
For 1882, farm wages were reported at $8.10 per 
month in North Carolina, $17.95 in Iowa, $27.08 
in Colorado. Much of this is difference in time- 
wages but not in piece-wages, as the higher paid 
men do the most and the best work, and so are 
drawn to the cities and other superior labor-mar- 
kets. Such real difference as there is within the 
same occupation is largely accounted for by the 



THE RATE OF WAGES. 171 

fact that labor cannot flow instantaneously to the 
best market. 

As between different occupations, the differences 
are more real. The average pay of brickmakers 
(census of 1890) was $300; of cotton-operatives, 
$313 ; of wool-operatives, $360 ; of glass-workers, 
$480; of watch-makers, $552. High cost (in time 
or money) of learning a trade, or its disagreeable- 
ness, makes workers fewer and wages higher. The 
probable irregularity of employment or the im- 
probability of success adds an element of insur- 
ance to wages. The superiority of physical skill 
or moral quality, as honesty, required, is another 
element. ''We want a man who won't lie to us, 
and we pay for that," said a large employer. So, 
also, in any one trade, superior skill or unusual fit- 
ness, accomplishing more, gets higher wages. Thus 
it is impossible to say that all workers, or all the 
workers in any one trade, shall get the same wages ; 
it is against the laws of nature. If a trade is un- 
derpaid, workers will go out of it; if overpaid, 
they will flock in ; but the average thus produced 
can never equalize the conditions of particular 
trades and individuals. There are here real dif- 
ferences of value of work which must count. 



1/2 ECONOMICS FOR THE PEOPLE, 

As between different periods, the invention of 
the steam-engine and of labor-saving machinery 
has so revolutionized labor that wages before and 
after their date are difficult to compare. There 
has also been a tendency to simplify the old com- 
plex payments in kind and in privileges as well 
as money, into direct money wages. In the thir- 
teenth century, according to Thorold Rogers, 
English field-labor was paid 2d, a day for men, \d, 
for women, a halfpenny for children (doubled in 
harvest), aggregating in the year £2 1 5 j. for a sin- 
gle man, or £/^ with wife and two children. A 
country artisan, working 300 days, earned £1 1 5^. 
to £^ ; one in London, £6 or more. Mutton and 
beef were a farthing a pound ; a laborer's board 
\\d. to \\d. a day. Five hundred years after, in 
1760, the division of money and the rise of prices 
giving the penny but one-twelfth the purchasing 
power, the English laborer, he thinks, was less well 
paid, with less hold on the land. For two of these 
centuries the condition of labor was steadily good, 
but the coinage of base money, the confiscation of 
the benefit funds of the guilds, and the act of Eliz- 
abeth providing that no person should practise 
any art without seven years' apprenticeship, and 



THE RATE OF WAGES. 1 73 

empowering the justices in Quarter Sessions to fix 
the rate of wages in husbandry and handicrafts, 
worked together to debase labor and lower wages. 
This " conspiracy to cheat the English workman 
of his wages," lasting two centuries and a half 
(i 563-1824), compelled the enactment of the ac- 
cursed poor-law, which, by prohibiting free move- 
ment from one parish to another, and by pauper- 
izing labor through the doling out of poor rates, 
and thus preventing a natural increase of wages, 
held back labor from its due share in progress. 
The new demand for labor under the factory sys- 
tem gave the working-man a new chance. The 
general tendency of progress since, where labor 
and trade have not been hampered by restrictive 
laws, has been to increase the time-wages of the 
laborer and reduce the cost of most of his sup- 
plies. 

Up to the present century, legislation as to 
wages was always against labor. It was denied an 
even chance. The tide has now happily turned, 
and not only have the old laws been repealed, but 
various legislative safeguards have been given to 
labor to protect it from abuse and to help it to 
the point where it would have been without the 



1/4 ECONOMICS FOR THE PEOPLE. 

legislation against it. " During the present cent- 
ury," says the Duke of Argyle, ** two great dis- 
coveries have been made in the science of gov- 
ernment : the one is the immense advantage of 
abolishing restrictions upon trade ; the other is the 
absolute necessity of imposing restrictions upon " 
\i. e., upon the abuse of] " labor." Out of this spirit 
have come the factory laws, the employers' liabili- 
ty acts, and the laws for the protection of children, 
in modern England ; out of this comes also the agi- 
tation for the eight-hour law. The danger now is 
that legislation will be pushed too far in the oth- 
er direction, so that by crippling employers and 
frightening capital, the demand for labor will be 
reduced. Ill-advised laws harm labor. No em- 
ployer can pay ten hours' wage for eight hours' 
work, or pay the poor workman as much as the 
good one. If he did he would fail, and throw all 
his laborers out of work. The law, it seems prob- 
able, cannot usefully go further than to define a 
legal day's work where no contract is made. 

There are many who think that by limiting 
work, or the speed at which they work, wages can 
be raised. What this really means is that by re- 
stricting men from working you can produce scarci- 



THE RATE OF WAGES. 1 75 

ty or monopoly value. If you can have only a 
hundred hats made when two hundred are wanted, 
the hatters, for the time, can get a higher price. 
But this can be arranged only in small skilled 
trades for a very little time, and even then the 
community — that is, laboring men in general — must 
suffer. Many laborers also will be thus kept idle, 
and the workers must pay through taxes for their 
maintenance as paupers, as they pay for the keep 
of convicts when these are not made to work. 

There is one way in which restriction does in- 
crease wages. In the Black Death of 1349, Eng- 
land lost a third of her population. Wages rose 
so that Parliament passed the infamous Statute of 
Laborers, which decreed that no one should refuse 
to work at, and no one should pay more than, the 
wages " customary " in 1347. The estate accounts 
of the time show how it failed ; real entries of 6d. 
a bushel for threshing barley were crossed out and 
the legal 2\d. put in. So, too, the Crimean war 
raised wages throughout Europe, and the Civil war 
wages here. This is the bettering of one man 
through the misfortunes of his neighbors. 

Yet the increase of productiveness is the one 
way in which wages, in general, can be raised. 



176 ECONOMICS FOR THE PEOPLE. 

Many wage-earners at one time looked to " cheap 
money/* /. ^., plenty of greenbacks, to do this. But 
as wages went up in greenbacks, this substitute- 
money went down and prices went up, so that the 
wage-earner could buy no more, in fact less, than 
before. For the rate of wages is always to be 
tested by what wages buy, and not by the cur- 
rency in which wages are paid. It is when all 
workmen work hard, with the best advantages of 
machinery, that there is more product to divide, 
higher wages and cheaper prices, and the two 
hours' leisure can be gained because so much 
more work is done in eight hours. 



XXII. 

THE CAPTAIN OF INDUSTRY: THE DIRECTION 
OF LABOR. 

There is a fourth and final factor in produc- 
tion, overlooked by many economists and often 
forgotten in the discussions of working-men. This 
is Brains, head-labor, which directs labor, and for 
its share in distribution gets Profit. The French 
speak of the '"''entrepreneur'' or enterprise-man, and 
Adam Smith refers to the "undertaker" of work, 
but, for the most part, he is considered an a.gent 
of capital or confused with the capitalist himself. 
The word Director more clearly defines him ; he 
directs how labor shall be applied, what shall be 
produced, and if his judgment is wrong instead 
of right, the consequent misdirected production 
brings about the disasters of modern industry. 
For what we miscall "over-production," "ill -dis- 
tribution of production," " under- consumption," 
is largely the misdirection of labor — over-produc- 

12 



178 ECONOMICS FOR THE PEOPLE. 

tion of the wrong thing and under-production of 
the right thing. The Director is thus the impor- 
tant person of the industrial organization — the 
leader, the master, the captain of industry, the 
organizing force. For while capital is timid, the 
director is the progressist. It is through him that 
leadership, mastery, tells in the economic world. 

It has usually been considered that this director 
or entrepreneur is only a higher class of wage-earn- 
er, and that profit is part of the return of capital 
after his salary has been deducted. This view is 
one result of the common association in one per- 
son of two or more of the several elements in pro- 
duction. The shoemaker who buys leather and 
has his own kit of tools and hires men is to that 
extent a capitalist and director. But in the highest 
industrial organization there emerges this fourth 
person as a distinct class, renting from the land- 
owner, borrowing from the capitalist, employing 
laborers, and himself taking the risk and reaping 
the profit, if such there be. The director may, 
indeed, enter the service of the capitalist and com- 
mute this profit by accepting salary or commis- 
sions. Or a corporation, an association owning 
land and supplying capital, will often assume risk, 



THE DIRECTION OF LABOR. 1 79 

employ managers, and under the name of divi- 
dends account at once for rent, interest, and 
profit. But this payment for direction, the re- 
muneration of brains, is almost always to be found, 
and usually in connection with some one person. 
Somewhere is the Man, controlling the machine. In 
the modern organization of industry the quickness 
of competition, requiring alert personal responsi- 
bility, commonly compels such concentration of 
power as an engineer has over a steam-engine. 
The conservatism and variant opinion of a " Board " 
is so ill -fitted to compete, that the larger the or- 
ganization and the more successful its competition 
is to be, the more likely is it that some one man 
will come forward as Managing director. 

Profit varies more than any other share. It in- 
volves risk ; it may become loss. Rent and inter- 
est are usually fixed charges, pre-stated ; wages are, 
in general, determined by the general conditions 
of trade and the labor-market. Profit remains 
after these three payments have been deducted 
from product. If product is insufficient to cover 
these three payments, the director remains respon- 
sible for the loss, unless he ''fails'* to pay, and so 
shifts it upon one of the other agents in produc- 



l80 ECONOMICS FOR THE PEOPLE. 

tion. Whether product exceed or fall below the 
sum of these three elements of cost — that is, 
whether it yield profit or loss — depends upon 
whether this factor of brains directs the labor it 
employs in such wise as to make product under 
or over the price obtained. Thus, like rent, profit 
is only the equivalent of labor saved ; like rent, it 
does not enter into price, being, in fact, the dif- 
ference between cost and price ; and, finally, brains, 
like land, is a gift of nature, of limited quantity 
(for this high purpose) and of varying quality. 
Brains not able to earn more than the ordinary 
wages of the laborer, correspond to the no -rent 
Land, and are pushed out of the directing into the 
directed class, as no-rent lands are thrown out of 
cultivation by the opening up of more productive 
soil. A tax on profits or incomes has thus the 
same basis logically as a tax on rent or the prod- 
uctivity of land, arising, like rent, from the saving 
of labor. Profit is not, economically, a return to 
capital, but to the brains which can by better or- 
ganization make one pair of hands do what two 
did before, and the remuneration is not got by re- 
ducing the pay of the first pair. As a matter of 
fact, the productivity of the first is raised, and the 



THE DIRECTION OF LABOR. l8l 

worker presently gets higher wages, while the sec- 
ond worker finds employment elsewhere in satis- 
fying the increase and growing variety of human 
wants. There is probably no better investment of 
the resources of the community than the profits of 
ten or twenty-five thousand dollars a year paid to 
superior directors of industry, who increase prod- 
uct far above the amount they get for them- 
selves. 

It is a great law of progress by competition, as 
Mr. Edward Atkinson has shown, that "in any 
given product, profits diminish, wages increase." 
Labor gets more and more, the director (and the 
capitalist) less and less, of the yard of cloth they 
join to make. The tendency of profit is to be- 
come nothing. As one director of industry takes 
advantage of an improved machine or a labor-sav- 
ing method, he lowers prices to the lowered scale 
of cost, so that by increasing his sales he may get 
greater returns though at a lower profit. His com- 
petitors presently "meet him" or "do better." 
This holds true except when combinations, as in 
the improvements in making Bessemer steel, deny 
this saving to the public. Profit is so apt, indeed, 
to be " undercut " by the general adoption of any 



1 82 ECONOMICS FOR THE PEOPLE. 

one man's improvements, that it has been found 
necessary to encourage inventors by patent laws 
which give them the exclusive right to reap the 
benefit of their brain - service for a certain time. 
Otherwise they could not afford to do this service. 
This kind of profit then becomes a definite ele- 
ment of cost until the patent expires, or until an 
equivalent invention again brings competition into 
play. It does not, however, add to price, because, 
like rent, it is the equivalent of labor saved ; if the 
invention had not given this advantage, people 
would not pay for it. 

It is by this fall of prices and lowering of prof- 
its that competition tends to drive out of business 
middle -men and small dealers. Houses whose 
closer business methods and superior facilities — 
the result of brains — give them large sales, can 
afford to make any one sale cheaper than small 
dealers. This is a hardship to the less able men, 
but the community gains. 

What we know as *' hard times," " bad trade," 
etc., seem to depend upon the directors of indus- 
try as affected by the margin of profit. It has 
lately been pointed out that the consumption of 
food, the transportation returns of the railways, in 



THE DIRECTION OF LABOR. 183 

short, the volume of staple business, are not notice- 
ably less in " bad" than in *' good " years, and that 
capital is cheaper in the former. In 1885, as 
shown by Commissioner Wright's national labor 
report, five per cent, of our factories, mines, etc., 
were absolutely idle, and as many more idle for 
perhaps half the year, leaving probably a million 
working-men unemployed, at a loss of $300,000,000 
in wages, and much more than that in product. 
A " better feeling," partly produced by and partly 
producing improved commercial and industrial 
conditions, would open many of these shut facto- 
ries, while such troubles as the railroad strikes of 
1886 tend to alarm employers and keep factories 
closed. The panic of 1893 compelled the railroad 
companies to lay off 93,000 men. Confidence and 
courage in the directing class seem to be a chief 
factor in the prosperity of the community at large. 



XXIII. 

THE RELATION OF EMPLOYER AND EMPLOYED. 

If you try to account, ori blackboard or paper, 
for the price of a yard of cloth made by a man- 
ufacturer who hires land and water-power and 
borrows capital to build and stock his mill, you 
will draw, first, a block for rent ; then for interest ; 
then for wear and tear of "plant" — that is, the 
building, machinery, and tools ; then for the cotton 
and other material ; last, for labor. You have cost 
now, but not price. The market price would be 
determined quite outside of this mill — by the de- 
mand for the kind of cloth made, the stock in mar- 
ket, the number and product of competing mills. 
If above cost, it leaves a block for profit ; if it 
falls permanently below, the goods must be made 
cheaper, or the employer must stop his works. 
Now, the two great blocks would be material and 
wages. If the employer can get material cheaper, 
he is less likely to resist the human pressure for 



RELATION OF EMPLOYER AND EMPLOYED. 1 85 

an advance of wages ; when he is between the up- 
per and the lower millstone of lowering prices and 
higher or steady material, neither of which are 
within his control, his only resource is to lessen 
the total wages. 

Here, in fact, is the key to what is commonly 
called the conflict between labor and capital. In 
the distribution of product the director of indus- 
try, who cannot control rent or reduce interest, 
struggles constantly to keep down the pay of la- 
bor, so that the cost, which he can thus modify, 
shall be so much less than the price, which is made 
for him, as to pay him for his head-work and risk. 
The man of brains, the director, is always trying, 
also, to make one pair of hands do the work of 
two. A new machine which does the work of ten 
men with only five, enables the employer, by re- 
ducing the wages -cost, to reap increased profit, 
until the general use of the improvement brings 
prices down nearer to the decreased cost. It is on 
his part a " struggle for existence," for his profit 
is constantly tending to disappear, as industry pro- 
gresses and prices lower. " Masters want the great- 
est profit, we men the highest wages," said a 
leading trade-unionist of England. It is, therefore, 



1 86 ECONOMICS FOR THE PEOPLE. 

not true that the " antagonism " is between labor 
and capital^ which helps labor at a lowering rate of 
interest determined outside the labor market, or 
land, whose rent represents labor saved ; it is be- 
tween the wage-earner and the profit-earner, the 
laborer and the director of industry, labor and 
brains, that the struggle exists by which, in the 
wise development of nature, the highest gain of 
both, at the expense of temporary loss, is finally 
secured. For out of this contest has come the 
motive to produce those wonders of labor-saving 
machinery which, in multiplying many fold the 
production of the world, have given the humblest 
worker " a better living." 

Capital has, however, often given to the director 
a staying power in this contest which labor lacked, 
and for a long time the laborer, helpless by him- 
self, had not a fair chance in this contest with the 
employer, often a great railroad corporation or 
joint-stock company, protected by favoring legisla- 
tion, or the controller of the aggregated power of 
a great private fortune. This led to the organiza- 
tion by the more intelligent working-men of the 
trades-unions and other labor organizations which 
have done so much for the interests of labor. The 



RELATION OF EMPLOYER AND EMPLOYED, 1 8/ 

fact that supply and demand ultimately regulate 
wages, is illustrated by the rise of the wages of do- 
mestic servants, who have no unions, but who have 
profited the most fully of any laboring class by in- 
creased demand. Nevertheless, the trades-unions 
have been of great service to the community in 
enabling labor to " hold its own " in many ways. 
Their effect has been not so much to stop compe- 
tition, as is commonly assumed, as to give each 
side in the contest an equal chance. When organ- 
izations have made the mistake of ignoring the 
law of competition, they have gone to pieces, as 
did the Knights of St. Crispin in Massachusetts 
some years since. 

In each city or centre of industry in the United 
States almost every trade has now its Union, in 
which most of the best workmen are associated. 
These Unions usually join in a central organiza- 
tion for each trade, or, as in the case of the pow- 
erful Brotherhood of Locomotive Engineers, a 
central organization leads to local association. 
There are also in the large cities general Assem- 
blies or Central Committees of the Unions of all 
the trades. State Assem.blies meet in several 
States, and a National Labor Congress has several 



1 88 ECONOMICS FOR THE PEOPLE. 

times been held. The American Federation of 
Labor is the national organization, thus organized 
by trades. The Knights of Labor are another or- 
ganization spread all over the land, enrolling work- 
ingmen without reference to their trade, but ac- 
cepting individual trades-unions among their many- 
thousand local bodies, under the executive direc- 
tion of a Grand Master Workman. 

The first result of labor association was natu- 
rally " strikes," the combined refusal of working- 
men to work. This led, as a counter-move on the 
part of masters, to ** lock-outs,** or the entire ceas- 
ing of employment by the stoppage of mills. This 
method of settling labor disputes produced enor- 
mous losses on both sides. It is a most costly meth- 
od of bettering wages. Even successful strikes do 
not often pay, because a strike that lasts one month 
requires a rise of ten per cent, for the rest of the 
year to balance the loss of wages. The United 
States Labor Bureau, for the 13 J years, 1 88 1 to 
June 30, 1894, schedules 14,389 strikes, involving 
69,166 establishments and 3,714,231 persons, be- 
sides lockouts involving 6067 establishments and 
366,690 employes. The largest number of both 
were in the building trades. The average dura- 



. RELATION OF EMPLOYER AND EMPLOYED. 1 89 

tion of the strikes was 25 days, and of the lock- 
outs 47 days. The strikes involved $163,800,000 
loss of wages, an average of $44 to each worker (of 
which $10,900,000 was made up by the labor or- 
ganization benefits), and $82,500,000 to employers. 
The lockouts involved $26,600,000 loss of wages, 
or $73 to each worker (of which $2,500,000 was 
made up), and $12,200,000 to employers. Out of 
the strikes in these 69,166 establishments 21,480 
were for increase and 5,564 against decrease of 
wages ; 10,543 for reduction of hours; 4,787 for in- 
crease of wages and reduction of hours; 3,793 sym- 
pathetic strikes ; 8,508 for recognition of unions or 
against non-union men. Of the strikes 44 per cent, 
succeeded, 1 1 per cent, partly succeeded, and 44 per 
cent, failed ; of the lockouts 40 per cent, succeed- 
ed fully, 9 per cent, partly, and 47 per cent, failed. 
Success has usually depended on the condition of 
the market, and seems to have been more frequent 
in demanding advances than in resisting reduc- 
tions. In one strike certain employers imported 
skilled Belgian glass-workers, but found that their 
labor cost more than the American, and it was as 
a result of this that the employers gave up. In 
the great strike of the freight-handlers, June, 1882, 



190 ECONOMICS FOR THE PEOPLE. 

the railway companies hired immigrants as they 
landed, but found that it took four of them to do 
one man's work. 

The limits of a strike are (i) the rights of indi- 
viduals, (2) the possibilities before the employer, 
(3) the public interest and public opinion. A strike 
which relies upon compelling any other men to 
cease work should fail, and usually does fail. That 
is a crime against " the right to labor." A strike 
which demands from the employer more money 
than the conditions of the market warrant, or than 
the price he gets for his goods permits, or which 
takes from him the direction of his own busi- 
ness, is sure to result ill. Such strikes drive em- 
ployers out of business and prevent others from 
coming in. A strike which sets itself against the 
public interest, by stopping railway trains and so 
blocking business at large, meets a public senti- 
ment which soon overwhelms it. Public opinion 
is, after all, the great arbiter, and is almost sure to 
uphold just strikes, but to defeat strikes when un- 
just. 

The " boycott " is a development from the strike, 
which consists in refusing to purchase from or hold 
other relations with the person " boycotted." It 



RELATION OF EMPLOYER AND EMPLOYED. 19 1 

took its name from a Captain Boycott, a landlord 
in Ireland, who was thus treated in 1880. The 
great evils of both the strike and the boycott, in 
the proportions they have lately reached, are the 
lack of responsibility with which they are used, 
and the inadequacy of the original wrong to justi- 
fy the stoppage of production and the great loss of 
thousands of other working-men, which they now 
involve. The great Western railway strike of 
1886 originated in an attempt to punish a 
bankrupt road for its action towards one man, 
and the Chicago riots and blockade of 1894 
in an attempt to boycott the Pullman Com- 
pany ; but their spread blocked business at large, 
deprived factories of their necessary material, and 
so stopped the wages of thousands of absolutely 
innocent people. The Milwaukee boycott against 
the street-car lines in 1895-6 was extended to all 
who patronized those lines, and nearly paralyzed 
business in all branches throughout the city. 

Arbitration, on the contrary, has proved the 
successful method of settlement for labor differ- 
ences. In France, under a law of Napoleon I., 
this method is provided by law. Over a hundred 
Conseils des Prud'hommes exist in different cen- 



' } 



192 ECONOMICS FOR THE PEOPLE. 

tres, made up of an equal number of employers 
and working-men, elected each by its own class 
under the auspices of the Government prifect^ 
with a president and vice-president appointed by 
the Government. A bureau particulier^ of one em- 
ployer and one working-man, sits every day, and 
before this disputes must first be brought. If an 
agreement is not here reached, the case goes to 
the bureau g^n&aly of at least five members, sitting 
once a week, and its decisions are enforced as a 
court of law. Over 35,CXD0 cases a year have come 
before these ConseilSy of which (in 1878) 10,000 
were withdrawn, 18,000 adjusted by the bureau 
particulier^ 7000 carried on to the bureau gMral^ 
of which it obtained the withdrawal of 4400 and 
adjusted over 2200, only 100 being appealed to 
the Tribunals of Commerce. Laws providing meth- 
ods of arbitration exist in England and in some of 
our own States, but in these countries voluntary 
has taken the place of legal arbitration. A Penn^ 
sylvania law authorizes judges of Common Pleas, 
on the petition of not less than fifty workmen and 
five employers, naming at least two representatives 
on each side and an umpire mutually chosen, to 
license a trade tribunal with legal powers. A 



RELATION OF EMPLOYER AND EMPLOYED. 193 

court of arbitration was provided by State law in 
New York City, with ex- Judge Fancher as arbi- 
trator, for the direct settlement of commercial dis- 
putes voluntarily brought before it, but this soon 
began to take the character of a regular court, 
with lawyers on either side. 

Voluntary arbitration has been most successful 
in the Nottingham hosiery trade, where the first 
systematic board was established in i860, since 
which time there has not been a strike ; in the 
manufactured iron trade and in the Durham coal 
trade, in England, and in the Pittsburgh iron trade, 
since 1865, in America. Where there is only a 
consultation between two sides, with no provision 
for enforced agreement, the method is properly 
called conciliation rather than arbitration ; where 
a third party is called in as arbitrator, whose de- 
cision is to be accepted or enforced, it is arbitration 
proper. The English iron trade presents, perhaps, 
the best model : the board is composed of one rep- 
resentative from the employers and one of the 
employes from each works joining. A standing 
committee, meeting at need, first hears differences 
and attempts conciliation; if no agreement is 
reached, the case is heard by the board, which 

12 



194 ECONOMICS FOR THE PEOPLE, 

meets regularly twice a year, or more often if nec- 
essary, and calls in an umpire or arbitrator if the 
board does not agree. The board is fully informed 
as to the conditions of trade, the manufacturers 
permitting sworn accountants to examine their 
books in its behalf. At a semi-annual cost of about 
$3000 this board has altogether prevented difficul- 
ties, which is the peculiar usefulness of stated meet- 
ings, and saved at least a hundred times its cost. 
The Durham coal arbitration board met at regular 
intervals, and peacefully adjusted a sliding-scale 
of wages based on the price of coal at the pit's 
mouth, which system prevented strikes until 1891. 
The Pittsburgh system, in this country, has so 
far been an imperfect one, making yearly agree- 
ments which have not altogether prevented strikes, 
but it is a step forward in a method peculiarly ap- 
plicable to American industrial conditions. 

This modern method of the settlement of labor 
differences recognizes a human relation between 
intelligent labor and intelligent direction, based, 
however, on those laws of Economics which show 
that labor, as a commodity, is subject to the lim- 
itations of the market. The employer, in this 
case, is willing to lay before the employes the 



RELATION OF EMPLOYER AND EMPLOYED. 1 95 

facts on which his calculations are based, and the 
employes, in turn, must refrain from any interfer- 
ence with the full direction of his business, which 
the employer must retain. The mistakes of labor 
organizations have been twofold, in endeavoring 
to compel employers to surrender the control of 
their own business, and in attempting to restrict 
other men's labor by persecuting individual labor- 
ers as "rats" and ''scabs/* by refusing to work 
with non - Union men, by limiting the number of 
apprentices, and, worst of all, by violence against 
law. This is a combination of the strong against 
the weak, traitorous and ruinous to the true inter- 
ests of labor, which public opinion sooner or later 
defeats. It is repeating the wrongs against labor 
which labor associations were organized to right ; 
and, by decreasing product, it wreaks its own pun- 
ishment upon the industrial community. Break- 
ing machines, restricting apprenticeship, shutting 
out the immigration of " cheap labor," are all meas- 
ures of restriction which, like usury-laws, offer a 
seeming and temporary relief at the final expense 
of those who look to them for benefit. The use- 
fulness of labor associations is not in breaking 
down the industrial organization, but in enabling 



196 ECONOMICS FOR THE PEOPLE. 

labor to " hold its own " in this contest, through 
arbitration or other peaceful means, by the self- 
same help of capital, massed through the petty 
savings for mutual aid. When, in the course of 
development by competition, corporations or indi- 
vidual directors abuse their power, and seek to 
defy natural rights, to control courts or to domi- 
nate Legislatures, sooner or later public opinion 
and the power of the whole people show them- 
selves mightier than they. The key to " the labor 
conflict," therefore, is in wise steadfastness of gen- 
eral trade organization, putting aside the dema- 
gogic promoters of " labor parties," promoting 
pure politics and alert public opinion, and appeal- 
ing with confidence, when need comes, to "the 
people," of which " laborers " themselves form the 
vast majority. 



XXIV. 

OF CO-OPERATION. 

Co-OPERATION, as opposed to competition, is, 
properly speaking, an association of Labor to se- 
cure profits as well as wages. It is not, as com- 
monly stated, a method of doing without capital, 
for a co-operative association usually begins by 
getting capital in small sums from its members, or 
by borrowing capital at the normal rate of inter- 
est. Co-operation may either set itself to the 
work of supply, dividing the profits of ordinary 
shops, or to that of production, dividing the prof- 
its of manufactories and other producing organi- 
zations. 

Co-operation in supply, sometimes called distrib- 
utive co-operation, has been most successful in 
Great Britain, where, starting from the 28 Roch- 
dale Pioneers of 1844, with their capital of ;^28, 
there were in 1891 1459 retail co-operative societies, 



198 ECONOMICS FOR THE PEOPLE. 

with 1,098,000 members, $55,000,000 share-capital, 
and $157,500,000 annual sales, mostly combined 
into a Co-operative Union, and supporting two 
great federated wholesale societies, whence they 
buy about $60,000,000 of their goods. There were 
also 100 manufacturing or productive societies, 
producing $12,500,000 yearly, and several feder- 
ated corn -mills. A co-operative insurance com- 
pany, a banking-house, the Co-operative Nezvs, and 
an annual congress are features of this system. 

Under the English system of distributive socie- 
ties or stores, (i) any one can become a member 
on deposit of \s, id. (30 cents) per share, for one 
or more shares. Sales are always (2) at ordinary 
market-prices (3) for cash. Stamped tokens are 
given to each member showing the amount of his 
purchase, which, at the end of the quarter, entitle 
him (4) to dipro rata share of dividends from prof- 
its. Out of these dividends 3^. (6 cents) a week 
for each share is retained by the society, to form 
the working capital, until (5) the £\ ($5) share is 
paid up, after which members can withdraw all 
their dividends or let them stay as capital, in which 
case 5 per cent, interest is paid. At the meetings 
each member has (6) one vote without regard to 



OF CO-OPERATION, 1 99 

his number of shares. Women are members, and 
there is a general Women's Guild or league for 
the spread of co-operation. The general meeting 
elects the Committee, whose members are some- 
times paid fees for each attendance. The com- 
mittees " find it worth while to pay well " for good 
store-keepers and employes, as societies, "at the 
saving of a few shillings or pounds yearly, which 
makes the difference between a good and an indif- 
ferent man, have lost hundreds of pounds, or even 
been ruined^ This is the strongest possible evi- 
dence that it pays Labor to pay for Brains or di- 
rection. These stores usually reckon on a profit 
of from 12^ to 30 per cent, on different classes of 
goods, and on 5 to 7^ per cent, working expenses. 
In 30 years they have done about $2,750,000,000 
of business, dividing $250,000,000 profits, averag- 
ing on capital employed about 30 per cent, and on 
sales about 9 per cent. Working-men's clubs, 
social gatherings, and entertainments are often 
associated with the stores. Sixty societies have 
building departments, aside from the hundreds of 
building societies proper. The great " stores " in 
London, such as the " Civil Service Supply Asso- 
ciation," the " Army and Navy," etc., whose enor- 



200 ECONOMICS FOR THE PEOPLE. 

mous quarterly sales-catalogues are the best au« 
thority for English prices, are rather joint-stock 
companies than true co-operative associations. 
The bitter complaint of private shopkeepers in 
England against the co-operative stores for " tak- 
ing the profits out of business" shows how im- 
possible it is to put any social improvement into 
operation without some detriment and much op- 
position. 

On the other hand, productive co-operation has 
not been notably successful in England. The 
greatest success has been in France, in M. Godin's 
Familist^re (or family-house) at Guise. This great 
man, in establishing his iron-works at that place, 
induced his workmen to contribute regularly to a 
mutual insurance fund, to which the works made 
an annual donation. About i860 he began the 
Social Palace, now holding over five hundred fami- 
lies. As the fund grew, M. Godin offered to asso- 
ciate its owners with him as partners, but it was 
not until 1880 that he got his Mutualite Sociale 
into final business shape as " Godin & Co." Its 
principle is that " every producing element should 
participate in the profits, in proportion to the serv- 
ices it has rendered." These are stated as (i) " the 



OF CO-OPERATION. 201 

earth and natural resources " (rent and cost of ma- 
terial) ; (2) "the actual labor of individuals " (wages 
at a settled schedule, the day's work being ten 
hours) ; (3) " capital, or labor economized, the pas- 
sive agent" (interest). The amount paid to labor 
as wages proves to be eight times that paid to 
capital as interest. Finally the (4) directing and 
administrative force is paid 25 per cent, of the 
profits (the Director, or " Acting Administrator," 
M. Godin himself, getting half of this), the other 
75 per cent, going to the workers, viz., {a) 68 as- 
sociates, counting for twice their wages in the 
allotment ; ip) 95 societaries, once and a half their 
wages ; {c) 573 participants, once their wages. The 
{d) auxiliaries, 158, have a claim only on the mutual 
insurance; and (e) 258 "interested" have certain 
claims on the capital. The associates choose a 
Council of Administration (which is a final arbiter 
as to individual wages), a Council of Industry, and 
a Council of the Familistere ; the general assembly 
chooses a Council of Observation. M. Godin is 
Acting Administrator for life, and chooses the 
heads of departments, after a written and oral 
examination ; his successor, to be elected by the 
associates, will also be for life, but subject to sus- 



202 ECONOMICS FOR THE PEOPLE. 

pension by the General Assembly. M. Godin, the 
associates, and the societaries all live in the Social 
Palace. The workers soon owned about $400,000 
of the social capital, and will ultimately own the 
whole $1,320,000. In one five-year period the re- 
turns were over $1,000,000, of which $267,000 has 
gone to M. Godin ($66,000 as Director, $201,000 at 
5 and 6 per cent, for his capital), and $756,000 to 
the workers. There are reserve funds for (i) the 
assurance of necessities to support life — " the con- 
secration of the right to life " — and a provision for 
old age ; for (2) sickness expenses ; for (3) medical 
care. 

From these two great examples of English 
distributive co-operation and French productive 
co-operation may be learned the usual cause of 
failure and the key to success in working-men's 
co-operation. It must recognize differences, and 
it must pay for brains. 

It is not within economic possibilities that the 
different qualities of labor and brains entering into 
the combination shall be paid at the same rate. 
The modern industrial organization demands a di- 
rectorship, usually by one authoritative person, of 
an ability which commands a considerable return 



OF CO-OPERATION. 203 

of profits or an equivalent commutation of them 
into salary. Most associations of labor have been 
unwilling to accept this necessity of leadership or 
to pay for it, and they have consequently been 
unable to stem the keen competition which only 
brains can meet. The trades -unions themselves 
have too generally fostered the mistake so care- 
fully avoided by M. Godin, in providing that all 
qualities of labor shall be paid for at the same 
day-rate. 

The system of M. Godin is, in fact, what is more 
accurately known as Industrial Partnership, in 
which employers retain the direction, but give to 
employes a share of profits in place of or in ad- 
dition to wages. The most noteworthy applica- 
tion of this method to ordinary trade conditions 
is the case of M. Leclaire's house -painting es- 
tablishment in Paris. The 200 employes, formed 
into a provident society, constituted one of three 
partners in the concern. M. Leclaire and his other 
partner retained $1200 each as salary and one-half 
the net profits. The other half went, two -fifths 
to the provident society, three -fifths to individ- 
ual workmen, distributed, however, according to 
M. Leclaire's direction. M. Leclaire found this 



1 

204 ECONOMICS FOR THE PEOPLE, \ 

method distinctly profitable to him. A similar | 
plan has been attempted in America, but a serious : 
blow was given to its development when, in a , 
general strike, the employes of Brewster & Co., \ 
the leading carriage manufacturers of New York, ; 
who had adopted this system, left work with the 
rest. Co-operation can succeed only when it is \ 
real — when each side works with the other. Not 
only Capital but Labor also must learn to respect 
rights. I 

Co-operative banking, by mutual loan associations, | 
is now common in all civilized countries. The \ 
most famous societies are the Credit-unions or peo- \ 
pie's banks of Germany, founded by Dr. Schulze- \ 
Delitzsch in 1850, which differ from our savings- i 
banks chiefly in requiring regular small deposits, ; 
under penalty of a fine, and in loaning this capital \ 
only to depositors. The Co-operative Building and | 
Loan Associations existing in Pennsylvania and i 
other States are on this model, loaning the depos- i 
its for the building of houses to those share-hold- I 
ers bidding the highest premium for the use of \ 
the money. There are several thousands of these j 
in this country. Our savings-banks, having in j 
1895 4,777,000 depositors and about $1,850,- 



OF CO- OPERA TION. 205 

ooOjCXX) deposits, and our mutual insurance com- 
panies, are also really co-operative banking asso- 
ciations. Another form of co-operation is the 
joint-stock companies, in which a number of peo- 
ple put their savings together by buying shares, 
and divide the profits, after paying expenses of 
management, in the shape of dividends ; these 
constitute, in fact, the largest co-operative inter- 
est in our own and other countries. 

The system of co-operative stores, so successful 
in England, has not made much headway in Amer- 
ica, though a few have been carried on by the 
Knights of St. Crispin and other labor associations. 
The reason is probably simple. Competition, it 
has been said, is the best co-operation. The eager 
competition in America, combined with our cash 
system, has given us in lowered prices the benefits 
which the English co-operators get as dividends. 
But, with our educated labor, there seems to be no 
reason why co-operative production, rightly organ- 
ized, should not attain enormous proportions in 
this country. A Co-operative Iron Foundery was 
established at Troy, N. Y., in 1866 ; there has been 
a successful Co-operative Printing-office in New 
York City, but the number of such enterprises 



206 ECONOMICS FOR THE PEOPLE, 

is yet small. Certain socialistic or communistic 
societies, like the Mormons, the Shakers, and the 
Oneida Community, have been large co-operative 
producers. 



XXV. 

SOCIALISM AND COMMUNISM. 

Socialism means an industrial organization in 
which society, or the State, takes a controlling in- 
terest, and the individual, surrendering more or 
less his personal relations, looks to the general or- 
ganization for direction and employment. The 
word was first used by Ruybaud in 1840, but this 
method for a more just distribution of wealth and 
for promoting the happiness of all is as old as 
Plato's "Republic." Communism is an extreme 
of socialism, aiming at economic equality or com- 
munity of goods, so that all social differences shall 
disappear and "one man be as good as another." 
Anarchism^ or Nihilism^ though it develops from 
communism, becomes the opposite of socialism ; 
it desires " unlimited liberty," providing that ev- 
ery human being should do as he pleases, and only 
as he pleases, under free contract, perpetually re- 
visable and dissoluble, and it proposes the destruc- 



208 ECONOMICS FOR THE PEOPLE. 

tion of all present governments, of which " the 
best are the worst," and a riotous grab for existing 
wealth. 

Communism and anarchism are the development 
of a society in which the very rich confront the 
very poor, in which an extreme division of labor 
renders workers very dependent on the industrial 
organization, in which a loose political morality is 
fostered by corrupt political parties, in which there 
is the false notion that democracy implies entire 
equality, and in which there is a general decay of 
personal morality or religion. Under these condi- 
tions a democracy like our own becomes the hot- 
bed of communism, and the care of statesmen must 
be to prevent these conditions. 

The French Revolution, loosening the bonds of 
society, opened the way in France for the devel- 
opment of the materialistic communism of Ba- 
bcEuf, the sentimental communism of Cabet, whose 
" Icarian " colony settled Nauvoo, Illinois, after the 
Mormons left it ; the " new Christianity " of Saint 
Simon and the positivist scheme of his disciple 
Comt6 ; the socialism of Fourier, with its division 
into working "phalanxes" of 1500 or 1600 men; 
the industrial socialism of Louis Blanc, with its 



SOCIALISM AND COMMUNISM. 209 

" right to labor " and " social workshops ;" and 
the ''mutualism " of Proudhon, who declared that 
''property is robbery," but upheld individual pos- 
session of the means of labor, such as land and 
tools. These French schemes, however, all came 
to naught. 

In Germany, on the contrary, socialism has hac' 
direct influence in the conduct of affairs. The 
"Social Democracy," of which Rodbertus was the 
philosophical founder, and whose Bible is the 
"Capital" of Karl Marx, furnished the principles 
of the International Working-men's Association, 
which held its first meeting in London in 1864, 
and proclaimed the oneness of the interests of la- 
bor in all countries. The anarchic " International " 
branched off from this in 1872, rejecting the lead- 
ership of Marx, and has since become an organ- 
ized threat to all governments. Marx's central 
idea was that capital hired labor at its value-in-ex- 
change, or market-price as a commodity, and got 
from it in product its value-in-use, pocketing the 
difference as profit. He would reduce all values 
to a common unit of average labor-time, and re- 
quire that each man should get the entire value 
of his own labor. 

14 



2IO ECONOMICS FOR THE PEOPLE. \ 

Lasalle, the central figure of German socialism, j 
became the propagandist of this doctrine among 
working-men, urging the abolition of wages under 
a system of productive co-operation like Louis i 
Blanc's, for which the Government should furnish j 
capital by a loan of $75,000,000. He started, in ; 
1863, the "Universal German Laborers* Union," \ 
and from this grew the Social Democratic political 
party, which has now several representatives in i 
the German Reichstag or Parliament. It demands | 
that the State shall exist for the laborers, land and \ 
capital becoming collective property, and produc- \ 
tion being carried on co-operatively. Many of the i 
details of its programme were so practically bene- 
ficial, however, that it gained much hold among ; 
the people, until Bismarck, endeavoring, on the j 
one hand, to repress it by his socialist laws, strove | 
to meet it on the other by such plans as his State i 
insurance for laborers. This requires a certain j 
part of wages to be put aside as insurance moneys | 
for laborers hurt or killed at their work, to which ! 
a certain sum is added by Government, which con- ; 
trols the insurance organization. The system is ' 
the same as that of the Baltimore and Ohio Rail- 
road Company in this country. i 



SOCIALISM AND COMMUNISM. 211 

In addition to the Social Democrats, there are in 
Germany the Professorial Socialists, or Socialists of 
the Chair, a number of professors of political econ- 
omy, whose leader, Wagner, is the economic coun- 
sellor of Bismarck, and who uphold State action in 
behalf of laborers by means of a strongly paternal 
government ; and the Christian Socialists, in the 
Catholic Church led by Bishop Baron von Kette- 
ler, and in the Protestant Church by pastors Todt 
and Stocker, who look upon religion as the motive, 
and the guardianship of the Church as the method, 
of the common betterment. The Christian Social- 
ists were represented also in France by the eloquent 
De Lamennais, and in England by the group in- 
cluding Kingsley, Maurice, and Hughes, who had 
shown their practical helpfulness by an attempt 
at co-operative societies about 1850, which were 
afterwards merged in the system started later by 
the Rochdale pioneers. 

Socialism in America has taken definite shape 
chiefly in the communities springing from a relig- 
ious or philanthropic germ. The Mormon state 
is essentially socialistic, and the villages of the 
Shakers, at Lebanon, New York, and elsewhere, 
are communistic, requiring a surrender of personal 



212 ECONOMICS FOR THE PEOPLE. 

property on the part of all joining the sect. There 
has been much socialistic and communistic agita- 
tion in the great cities, where dangerous seed has 
been sown among the working-men's associations 
by demagogues, but for the most part our free 
democracy has declined to accept communistic 
principles. 

There is, however, a considerable development 
of the socialistic method in the adoption by mod- 
ern governments of the business of the post-office, 
telegraphs, and railways, in most cases as a mo- 
nopoly forbidding rivalry by private enterprise. 
All civilized countries treat the post-office as Gov- 
ernment business, and this has developed, indeed, 
in the International Postal Union, into an interna- 
tional organization. To this Great Britain adds the 
telegraph system, and Germany and other Euro- 
pean countries the entire or partial ownership and 
control of railways. Germany proposes now, also, 
to make the manufacture of spirits as well as 
of tobacco a Government monopoly, though this 
is only as a means of revenue. City govern- 
ment, involving the supply of water, and in some 
cases gas, also involves the socialistic method. 
The extreme laissez faire doctrine as to Govern- 



SOCIALISM AND COMMUNISM. 213 

ment functions has been practically modified into 
the dictum that Government should not undertake 
what can be as well done by private enterprise, 
and this test is accepted by most economists. This 
is a question of practice, limiting the application 
of socialist method by the facts of the individual 
case. Government, taking capital from the people 
by means of taxes, must make sure that these 
are used profitably for all. 

But this adoption of socialistic or co-operative 
method by Government does not imply acceptance 
of the socialistic principle that each man has the 
right to look to the State for his means of liveli- 
hood. The distinction is vital, for this theory is 
destructive of the individual responsibility on 
which alone a free democracy can be based. So- 
cialism, in this sense, would be indeed a new 
slavery, reducing " each of us " to be the subject 
of " all of us," a sovereign master indefinite and 
irresponsible, under whose reign of terror our 
Government would fall as Rome fell and as France 
fell. 



XXVI. 

TAXATION AND NATIONAL DEBT. 

It has been said that there are two things cer- 
tain — death and taxes. Taxes are that part of 
the wealth of each citizen taken by Government to 
be used for the benefit of all. Government, like all 
other service, costs money. This money comes 
out of the pockets of the people : there is no other 
place to get it. It may come by direct taxation, 
in which each citizen pays so much directly to the 
tax-collector; or by indirect taxation, such as a 
tax on goods bought and sold, in which the tax is 
added to the price and is finally paid by the man 
who finally uses the goods. Some one has called 
these the ** straight" and "crooked" methods of 
taxation. In either case the money comes from 
the earnings or savings, the product or property, 
of the citizens ; each man has less than he would 
have had if he had not paid the tax or the in- 
creased price. 



TAXATION AND NATIONAL DEBT. 21$ 

Unless a Government has public lands or other 
property to sell or rent, or unless it takes away- 
business from its own citizens by competing with 
them or monopolizing certain kinds of business, 
taxes are the only means of support for a Govern- 
ment. For if it spends more than it gets, and runs 
into debt by issuing promises-to-pay called bonds, 
sooner or later this discounting the future must be 
paid in higher taxes, unless by "repudiating" its 
bonds it cheats those who have advanced it money. 
Taxes are thus " the life-blood of a nation ;" and 
as self-preservation is the first law of life. Govern- 
ment has the right to take all the wealth of all its 
citizens, if that be necessary. Practically, too high 
taxes lead people to revolt, as in our Revolution, 
or to dodge, as when many rich men moved from 
Boston to Nahant, or to cheat, as when the United 
States found that it got more money from a 50 
cent tax per gallon on whiskey than from a $2 tax. 

Taxes used to be paid in kind — one sheep out 
of ten. To this day a countryman can pay his 
road-tax by so many days' labor on the roads, or 
(it is said) a merchant the 50 per cent, duty on silk 
by giving up one yard for every two he keeps. 
But, for the most part, taxes are " assessed '' as so 



2l6 ECONOMICS FOR THE PEOPLE. 

much percentage on a money "• valuation " of prop- 
erty; taxation, from the Latin taxare, to value, 
means, indeed, a valuing or counting. After the 
legislature or the town -meeting has fixed the 
amount to be raised, assessors or appraisers, ap- 
pointed by the authorities, fix this valuation, or 
" doom " the property. In Boston they meet in 
what is called the "dooming chamber," and the 
famous Domesday Book was the first tax-roll and 
census of England. This valuation is sometimes 
the "fair market value" of property, which is the 
rule at the custom-house and in some States and 
cities ; sometimes a half or a third of this, as in 
other States and cities. The mere rate of taxation 
thus means little : 2 per cent, on a valuation of a 
third is a lower tax and brings less money than 
I per cent, on a full valuation. 

In fact, a tax is not good or bad simply as 
the rate is low or high, but according to how 
the money is raised or used. The productive- 
ness of a tax is not its first consideration. A 
heavy tax may be far less injurious to a country 
than the blight which may result from the manner 
of taxing it — a blight which ruins the harvest 
which it cannot gather. Good government is the 



TAXATION AND NATIONAL DEBT. 21/ 

best of investments ; bad public service is the worst 
of waste. A community of high civilization pays 
large taxes, and profits by them ; poor communi- 
ties starve without them. In most cities the high- 
est tax paid is the charge for water, but a citizen 
who pays $I0 a year saves much more in the avoid- 
ance of the cost of keeping his well clean, of buck- 
ets, and of labor in fetching and carrying. A good 
sewerage system is costly, but it saves a great deal 
besides doctors' bills. Good roads and streets save 
more than their cost in time, wagons, and horse- 
flesh. But a tax must justify itself by its increase 
of product, through greater safety, comfort, or fa- 
cility. It must give more than it takes, and each 
person must get his money's worth of good. Tax- 
ation is robbery when it is used otherwise than for 
the benefit of all. The Tweed Ring in New York, 
capturing the city government and the taxing 
power, simply spoiled the people in general under 
forms of law, instead of picking their pockets one 
by one in the street. So when Topeka, Kansas, 
undertook to give $100,000 to a manufacturing 
company to locate its shops in that city, the Unit- 
ed States Supreme Court declared that taxation 
*'to aid private enterprises and build up private 



2l8 ECONOMICS FOR THE PEOPLE. 

fortunes is none the less a robbery. There can be 
no lawful tax which is not laid for public purposes." 
Those who oppose tariff taxes intended to build 
up particular industries claim that these are a sim- 
ilar robbery of the people taxed by the increase of 
price. The exemption of one set of persons or 
kind of goods, while other competing persons or 
goods are taxed, also gives one an advantage at 
the expense of others. 

The purposes for which it is generally consid- 
ered that Government may properly levy taxes in- 
clude the actual cost of legislation and executive 
work, covering public buildings as well as sala- 
ries and expenses ; the enforcement of justice by 
courts, prisons, and police ; the common defence 
by army and navy ; public works, such as sewer- 
age and water systems; education by means of 
public -schools; enterprises for the common good 
beyond the scope of private organization, such as 
the postal system and exploring expeditions ; and, 
within close limits, the care of the defective and 
destitute classes. 

The people of the United States paid in the 
census year 1890 $1,040,000,000 for their govern- 
ment, being from 7 to 8 per cent, of their annual 



TAXATION AND NATIONAL DEBT. 219 

product, or l^^ per cent, of their total property 
— about $16 for each person or $46 for each 
worker. Of this more than half was direct tax- 
ation for State and local purposes : according 
to the census of 1890, $116,000,000 State, $133,- 
000,000 county, $329,000,000 city and local, in all 
$578,000,000 on a valuation of $25,500,000,000, of 
which $19,000,000,000 was real and $6,500,000,000 
personal property (the last being absurdly low, 
because of the difficulty of finding out about it). 
The purposes for which city taxes are used were 
illustrated by an analysis of New England city 
debts, which showed 20 per cent, for water-works, 
1 5 per cent, for streets and bridges, 6 per cent, for 
parks and public places, 3f per cent, for public 
buildings, 3 per cent for fire departments, 3 per 
cent, for sewers, 28^ per cent, for refunding old 
debt, and 10 per cent, for railroad and other aid. 
The nominal tax rate of cities ranges from 80 cents 
to $5.76, of States from 10 cents to 90 cents, per 
$100. The National Government in 1894-5 raised 
$152,158,000 by customs and $143,421,000 by inter- 
nal revenue tax, besides $76,983,000 postal reve- 
nue, and $17,800,000 miscellaneous receipts — $390,- 
373,000 in all. The national debt, the cost of our 



220 ECONOMICS FOR THE PEOPLE. 

war, which in 1866 reached over $2,750,000,000, is 
now under $1,1 26,000,000 (net), costing $3 1 ,000,000 
interest, and the State and local debts (after deduct- 
ing from the gross debt the "sinking funds," i.e.^ 
moneys set apart to pay debts) were by the census 
$1,135,000,000, costing about $60,000,000 interest, 
in all about $2,260,000,000, costing about $91,000,- 
000 interest yearly. This is a debt of over $32 for 
every man, woman, and child, involving a tax for in- 
terest of over $4 yearly on every earner in the United 
States. It used to be said that ** a national debt 
is a national blessing ;" but this meant only that 
our war for the Union was worth in lives and 
money all it cost. Debt is in itself not a blessing 
but a curse. Taxes and debt are good or evil ac- 
cording to what we gain by them. Europe is bur- 
dened by debts of over $22,000,000,000, involving 
a yearly tax of over $1,000,000,000 on her hard- 
worked people, which represents chiefly the waste 
of needless war. 

Adam Smith laid down four famous canons of 
taxation : that each citizen should pay in propor- 
tion to his abilities, i. e., on the property enjoying 
or claiming the protection of the taxing power; 
that a tax should be certain and not arbitrary, the 



TAXATION AND NATIONAL DEBT 221 

time and manner of payment and the amount 
plain to all ; that it should be collected when it 
can be easiest and as it can be easiest paid ; that 
it should take out and keep out of the pockets of 
the people as little as possible over what it brings 
into the treasury. That is, a tax should be laid 
equitably and definitely, and collected with con- 
venience and economy. The diflficulty in these 
rules lies in their application — whether as to meth- 
ods of taxation, direct or indirect, or as to subjects 
of taxation, which may be ** persons, business, or 
property." 

A tax on persons is called a poll {i.e.^ head) tax; 
this is a form of direct tax that has almost gone 
out of use except for keeping some kind of count ; 
in Massachusetts, until lately, and in other States, 
no one could vote until he had paid his yearly poll- 
tax of $2. A tax on business may be a license or 
occupation tax, such as a liquor -dealer or hack- 
driver pays before he can do business — chiefly 
used now to regulate callings partly public in their 
nature ; or a tax on evidences of transactions, as 
by " stamps " on a contract ; or a tax on the 
amount of business, as on sales. Of this sort also 
are tarififand excise taxes, though they seem to be 



222 ECONOMICS FOR THE PEOPLE. 

levied on property. A tariff (from the Spanish 
tarifa, a list of rates) is a schedule of taxes, often 
called duties, collected at the " custom-houses," on 
goods imported from other countries. In "a tariff 
for revenue only " duties are so low that goods are 
still brought in and pay revenue to the Govern- 
ment ; in " a protective tariff " duties are so high 
that foreign goods are kept out, so that manufact- 
urers may get higher prices for goods made at 
home, which increase the people pay, though the 
Government gets no revenue. Excise or "inter- 
nal revenue" taxes are those collected on goods 
produced at home, as on liquors and tobacco. 
These are all indirect taxes, adding to price. They 
are the least disliked, simply because they are not 
seen, since less than 300,000, or a half of one per 
cent., of our people seem to pay them ; but they are 
the most costly, requiring great numbers to collect 
them, and the most wasteful, since each seller not 
only adds them in his price but adds also a profit 
on the tax, until the final consumer may pay on 
his blanket twice the actual duty. 

Legacy or succession taxes, levied in England, 
are taxes on property received by bequest, usually 
heavier according to distance of relationship. In- 



TAXATION AND NATIONAL DEBT. 223 

come taxes are another tax on property — a pro- 
portion of the yearly earnings of each person. 
When the lower incomes are exempted — as during 
our war $600, and afterwards $2000 — this tax is 
one on superior power, /. ^., brains, or capital, ex- 
empting labor. These are hard taxes to levy just- 
ly and to collect fully — people do not tell the 
whole truth, and object to having their affairs 
" spied out ;" also many cannot really fix their in- 
come in money — so that they were given up soon 
after the war. Taxes on property are accordingly 
chiefly direct taxes on personal property (mova- 
bles) and real property (buildings and land). The 
first are so hard to fix that they become a farce ; 
while the wealth of the country has been steadily 
increasing, the valuation of personal property 
shows a falling off. Thus while the total valua- 
tion of New York City is over $2,106,000,000, per- 
sonal property under $375,000,000 is all that is 
found to tax. Under the personal property tax, 
also, the mistake is often made of taxing evidences 
of debt as well as wealth ; of taxing a mortgage 
of $5000 in addition to the $10,000 house it is on, 
though there is in all only $10,000 of property to 
tax. Taxes on real property are thus becoming 



224 ECONOMICS FOR THE PEOPLE. 

the main element of Government revenue, since 
land and houses cannot run away or hide, and their 
value is easily determined. 

The old system of taxation was to lay a tax on 
everything — " infinitesimal taxation," and, as Col- 
bert put the ''art of taxation," to "so pluck the 
goose \i. e., the people] as to get the most feathers 
with the least squealing." A self-governing peo- 
ple ought, on the contrary, to have the simplest 
possible system of taxation, so that they may look 
taxes squarely in the face and make sure that they 
get the worth of each cent they pay. The New 
York State Commission of 1870, in the famous 
reports of Mr. Wells, recommended, accordingly, 
that State taxes be confined to (i) a tax on cor- 
porations having a monopoly, as gas companies, 
which cannot remove ; (2) a tax on land and build- 
ings ; (3) a tax based on a valuation of three times 
the rental value of the house in which a man lives, 
in lieu of tax on personal property, on the ground 
that a man's wealth and income are fairly tested 
by the cost of his residence. Other economists, 
among them John Stuart Mill, favor the laying of 
taxes chiefly upon land, especially on the valuation 
of unimproved land in the neighborhood. This 



TAXATION AND NATIONAL DEBT. 22$ 

system — taxing unused land as much as used — 
would prevent the accumulation of vast estates of 
land held unused "to wait a rise," and would throw 
the burden of taxation upon city landholders, 
whose land has risen in value chiefly by the " un- 
earned increment " from the progress of society, 
while relieving farmers who by improving their 
land are doing service to society. Mr. Henry 
George's proposed system carries the idea of land 
taxation still further ; he would lay a tax equal to 
rent (using the word in the economic sense), and 
thus take the whole of the " unearned increment " 
for public purposes, leaving to the landholder only 
the earnings of his labor, capital, and brains. 

The taxing power of a Government does not go 
beyond its own boundaries. A country, or State, 
or city which overtaxes or misuses taxes, drives 
wealth and population outside its boundaries be- 
yond its taxing power, and so increases the bur- 
den on each person who remains. As it is found 
that taxation bears not so much upon the value 
of business done as upon the profit made, a very 
slight change will drive manufactories, for instance, 
from one town or State to some other town or 
State where the tax conditions may be more favor- 

15 



226 ECONOMICS FOR THE PEOPLE, 

able. "Never tax anything," says a modern au- 
thority, ''that would be of value to your State, 
that could or would run away, or that could and 
would come to you." The American people will 
probably come, within a generation, to the sim- 
plest form of taxation, levying a single tax on 
land, at its fixed place, not where the owner lives, 
by which probably the national as well as State 
and local taxes will be collected on one system by 
the same tax-gatherers, half-yearly or quarterly, 
and each tax-payer will know all he pays and how 
it is spent. 

Legislation in the form of taxation has always 
a strong indirect effect in directing consumption 
from or into certain channels, and the objects and 
methods of taxation must always be brought to 
this economic test. The thing which is taxed, or 
the form of industry which is taxed, is put at a 
disadvantage beside that which is not taxed, with 
the result of increasing price and so decreasing 
demand. The statesman whose sole purpose is 
to raise revenue cannot overlook the fact that the 
method and subject of taxation greatly influence 
the every -day life of his people, especially since 
the cost of government is sometimes ten per cent. 



TAXATION AND NATIONAL DEBT. 22/ 

of all expenses. A tax on liquor has been a favor- 
ite tax because it increases the cost of drinking ; 
on the other hand, it has a tendency to promote 
the adulteration of liquors, and so to poison those 
who will drink anyway. There is a popular cry 
to tax luxuries, but it is always difficult to draw 
the line between necessaries and luxuries ; thus 
people are divided as to whether tea and coffee 
ought to be taxed or not taxed. 

Taxes, as an item of distribution in business 
reckonings, belong in part to wages, so far as the 
Government is preventive and is paid for public 
service as a watchman is paid, and in part to in- 
terest, so far as the Government is constructive 
and furnishes roads, bridges, and other capitalist 
elements in production. A constructive Govern- 
ment easily becomes a paternal Government, fa- 
thering all sorts of enterprises. The tendency of 
the exercise of the taxing power is, in fact, to make 
a Government paternal. The comparative useful- 
ness of preventive and paternal functions in Gov- 
ernment is rather outside of Economics, but it may 
be noted that this seems to vary with the develop- 
ment of a people : a Government which takes upon 
itself wide constructive work being the most useful 



228 ECONOMICS FOR THE PEOPLE, 

in communities in which, as in India, the body of 
the people lack mobility, organizing capacity, and 
foresight, and look to Government to supply this 
lack of mastership, and least useful in communi- 
ties which have these qualities in high degree, are 
their own leaders, and are self-regulating. A pa- 
ternal Government is always in danger of making 
wholesale mistakes, and doing harm instead of 
good accordingly. 



XXVII. 

THE USING OF WEALTH — CONSUMPTION. 

The purpose of wealth is use. Men produce 
solely to consume. Consumption, the final aim of 
production and exchange, though economists are 
but just beginning to study it, is in one sense 
the most practical department of all ; for, more 
than anything else, this is within human control 
and direction. Our desires vary with the kind 
and strength of the motives we cultivate in our- 
selves. The savage, for instance, desires great 
quantities of food, and a big fire to keep him 
warm : a few things, in large quantities, satisfy 
him. As civilization advances, desires increase in 
variety, and begin to look rather to quality than to 
quantity. The civilized man eats less of any one 
thing, but his appetite is developed to desire varie- 
ty of food ; and instead of using great quantities of 
fuel to warm him, he dresses more warmly, builds 



230 ECONOMICS FOR THE PEOPLE, 

a better house, and so needs less instead of more 
fuel. This " law of variety " of desires gives the 
key to economic progress. We always want more 
than we can get. Human desires multiply beyond 
the means of satisfying them. There cannot be 
too much in the total, though there may be more 
at one time or place than is wanted of any one 
thing. 

The great fact here is that supply is controlled 
by demand rather than demand by supply. When 
we go to a store we buy what we want, rather than 
what the store-keeper wants to sell us. Statutes 
cannot control demand ; *' sumptuary laws," tell- 
ing men how they shall or shall not dress or eat, 
have always failed. But one thing can — an intel- 
ligent sense of moral and economic laws, moulding 
public opinion to a higher standard of life. There 
is no factor in the world so strong ; for it holds 
with the savage as with the civilized man, and 
with the pagan as with the Christian. Wise legis- 
lation may help ; but laws against public opinion 
prove only a dead letter or a hinderance. It is 
found, indeed, that there is a natural order or scale 
along which men seek to gratify desires. Their 
first requisite, after air, is food ; next clothing and 



THE USING OF WEALTH— CONSUMPTIOISr. 23 1 

housing ; next ornament and amusement ; and, 
later, food of the mind. With civilization these 
wants become infinitely varied, and the higher 
wants control more and more. The important 
thing, therefore, in national as in personal devel- 
opment is that people should be trained by their 
preachers, their teachers, their newspapers, and 
their statesmen to desire good things and to avoid 
waste. " Tell me what you like " — what you want 
— says Mr. Ruskin, writing of Economics, " and I'll 
tell you what you are." 

The great preventable wastes in this country 
are from fire, from liquor, crime^ pauperism — these 
three closely connected ; from waste of food, and 
from the waste of unemployed labor under inad- 
equate industrial conditions. The annual fire loss 
of the country is now about $i5o,cx)0,ooo per year 
(of which the $90,000,000 paid by insurance com- 
panies is none the less loss), the cost of sustaining 
insurance companies is over $53,000,000, the cost 
of fire departments is perhaps $40,000,000 — in all 
nearly $250,000,000 per year, or over one dollar and 
a half in each hundred dollars' worth produced, or 
about 12 to 15 per cent, on the possible savings in a 
prosperous year. Much of this could be saved by 



232 ECONOMICS FOR THE PEOPLE. 

common-sense construction, common skill in pre- 
vention of loss, and common care in the use of 
property, which have already resulted, as applied 
through mutual insurance inspections, in reducing 
greatly the proportion of fire loss to property in- 
sured. The " drink-bill " of this country is figured 
by Mr. F. N. Barrett at over $1,000,000,000 yearly, 
including over 85,000,000 gallons of spirits, aggre- 
gating nearly $400,000,000 ; over i ,000,000,000 gal- 
lons of beer, aggregating $500,000,000; and 40,- 
000,000 gallons of wine, aggregating $100,000,000. 
This drink-bill is nearly as much as all the taxes, and 
absorbs from 7 to 10 per cent, of our exchangeable 
product. Our loss by the 82,329 criminals reported 
in jail in 1890, and the many more out of jail, is 
incalculable. Mr. Dugdale estimated that the act- 
ual loss, and the potential loss from idleness and 
early death, in the case of " The Jukes " criminal 
family alone, numbering 1200 people, was in 75 
years $1,258,000. The 73,044 paupers reported in 
almshouses form but a small part of the pauper 
burden. Mr. Edward Atkinson estimates the con- 
sumption of food (excluding liquors) in this coun- 
try at a minimum of $6,600,000,000. Probably 10 
per cent, is a low estimate of food waste, i. e., we 



THE USING OF WEALTH— CONSUMPTION. 233 

could save by wiser living over $660,000,000 per 
year. Due precautions against fire, the growth of 
temperance, the reduction of crime and pauperism, 
and the wiser use of food, could add to our na- 
tional wealth each year much more than the pres- 
ent amount of our total annual savings. In addi- 
tion to all this, better industrial organization will 
save the enormous loss by unemployed labor. 

Of late years economists have begun to give 
much attention to the savings and spendings of 
the people. Dr. Engel, a German economist, has 
shown that the smaller a man's income the larger 
is the proportion of it he spends for food ; while 
clothing remains nearly, and rent, fuel, and light 
almost exactly, the same proportion with different 
incomes. Thus, as a man's income increases, he 
spends more and more in proportion for the high- 
er " sundry expenses," such as education, worship, 
legal protection, health preservation, and recrea- 
tion. In Germany, Dr. Engel found, working-men 
who earn $225 to $300 yearly, the middle -class 
earning $450 to $600, and the well-to-do having 
$750 to $1100 incomes, all paid about 12 per cent, 
for lodging and 5 per cent, for fire and light ; the 
working-men 16 and the others 18 per cent, for 



234 ECONOMICS FOR THE PEOPLE. 

clothing ; while for subsistence the working-man i 

had to use 62 per cent., leaving only 5 per cent, i 

for higher needs; the middle-class spent 55, leav- i 

ing 10 per cent. ; and the well-to-do only 50, leaving j 

15 per cent, for ''sundries" and savings. The sta- '{ 

tistics of Great Britain show that a working-man's \ 

family earning $500 (out of which they save 1.76 ' 

per cent.) spend for rent I3|- per cent., for fuel 3^, j 

for clothing 18, for subsistence 5i|^, for sundries \ 
13^ per cent, of the total out-go. The average of 

the " working-men's budgets " collected in Massa- j 

chusetts by its Bureau of Labor Statistics show j 

on a family income of $750 (of which 6.1 1 per cent. : 

is saved) a percentage for rent of 20, fuel 4^, cloth- j 

ing 16, subsistence 49, sundries 11 per cent, of the j 

total out-go, I 

Out of our annual product as a nation, of $14,- ! 

000,000,000 (in 1880), we consumed as food and ; 

drink, according to Mr. Atkinson, about $6,600,000,- j 

000, nearly half. The rentals we paid each other i 
(including payment for buildings) would probably 

reach $1,800,000,000, with an additional $500,000,- ' 

000 for fuel and light. Our clothing costs about i 

$1,300,000,000. We pay about $1,050,000,000 in | 

taxes, part of which goes to such items as water- i 



THE USING OF WEALTH— CONSUMPTION. 235 

supply, education, etc. For education itself we 
pay considerably above $180,000,000 yearly; ex- 
penditure for religious purposes covers many mill- 
ions more. Our annual savings are estimated vari- 
ously at from $1,000,000,000 to $1,400,000,000. In 
the present state of economic statistics, however, 
these figures are little more than broad guesses. 

We produce to consume, but it is also true that 
we consume to produce. We consume ore to pro- 
duce *' pig-iron," and "pig" to make bar -iron or 
steel, and this to produce machinery, and this we 
wear out in making other things, as ploughs to raise 
wheat. We consume wheat to produce flour, this 
to make bread, this to make muscle, this to dig 
ore perhaps. Wealth used as capital gives us pro- 
ductive consumption ; when we use product sim- 
ply to gratify our desires, it is non-productive con- 
sumption. But it is not easy to draw a clear line ; 
bread may be food and cake luxury, but a bun 
is either or both. So, also, we may speak of de- 
structive consumption, in which the article con- 
cerned is destroyed by use, as food or fuel, and 
what we may call conserving consumption, in which 
the article ministers to desire again and again, as 
a house or a tool which does not wear out for a 



236 ECONOMICS FOR 7 HE PEOPLE. 

long time, or is without any loss by use, as a book 
or a picture. 

There are two opposite notions of consumption 
equally untrue — that spending is in itself desira- 
ble, and that saving is in itself desirable. Some 
think that to spend a great deal of money, as in 
a Vanderbilt ball at which the flowers alone cost 
$4000, is a great good, because it " makes trade." 
They forget that waste is not wealth-making ; war, 
fire, the sinking of a ship, also " make trade," be- 
cause by destroying existing capital they increase 
demand. The wealth thus wasted would, more 
wisely used, furnish capital to many more people 
in creating more wealth. On the other hand, 
hoarding is not wealth -making; wealth hoarded 
is withdrawn from capital without doing any one 
good. The truth lies between : that man, or that 
nation, is best off which consumes most in the 
higher part of the scale ; which keeps its consump- 
tion below its production, so that it accumulates 
wealth ; which keeps productive consumption high 
in proportion to non-productive consumption. It 
is not how much is consumed, but how it is con- 
sumed, that tells. 

All producers are consumers ; but certain classes 



THE USING OF WEALTH— CONSUMPTION. 237 

of consumers are often referred to non-productive 
consumption — as domestic servants and profes- 
sional men. But most human labor, unless mis- 
directed, is actually productive; for a domestic 
servant saves the force of a person of greater pro- 
ductivity, a doctor keeps him in working order, a 
lawyer helps to make it possible to transact busi- 
ness with surety, a clergyman promotes morality 
and thus renders it easier to exchange justly and 
profitably. There nevertheless remains a certain 
proportion of service and of corresponding pay- 
ment in most of these cases, which must truly be 
referred to non-productive consumption. 

The final question .of consumption is whether 
population, which can increase like compound in- 
terest, will in the increased demand for food out- 
run the supply, since food is subject to the law of 
diminishing returns. Malthus points out that the 
lowest population are less self-restrained and breed 
most freely. To the present time, however, each 
generation since Malthus has had more food in- 
stead of less than that preceding, because of in- 
creased production. This problem of population, 
food, and land, like that of the exhaustion of the 
coal beds, is one of the far future ; and, as other 



238 ECONOMICS FOR THE PEOPLE. 

natural products like oil, or forces like electricity 
and direct solar energy, are beginning to help out 
coal, so many other elements temper this fear for 
the future. The valleys are always being replen- 
ished by the disintegration of the hills, as well as 
by the gifts of the rain and the air ; but as to when 
the earth becomes one level and the sun grows 
cold, who shall say, or who can profitably think ? 
The experience of the world so far has been that 
man has continually bettered himself, by discover- 
ing new methods of utilizing the forces of nature, 
which gives us reason to believe that the human 
race, as it learns to use the earth at its best, will 
have more food instead of less. 



XXVIII. 

THE EARLY HISTORY AND LITERATURE OF ECO 
NOMICS. 

The study of economic history and literature 
is useful in three ways — to show us the develop- 
ment of thought, to give us the facts from which 
to obtain or verify economic laws, to enable us to 
follow or to avoid the courses which have made 
other nations great or brought them to their ruin. 
The scientific study of Economics as a systematic 
body of natural law is essentially modern, dating 
scarcely beyond the sixteenth century. But eco- 
nomic laws, institutions, and facts have existed 
from the beginning of human history. The Bible, 
the Babylonian bricks, and the writings of Herod- 
otus, "the father of history," give us the earliest 
references to trade, weights and measures, coinage, 
taxation, and other economic institutions. The 
Jews have always been traders. Solomon was a 
great merchant king. Their government revenue 



240 ECONOMICS FOR THE PEOPLE. 

came from tithes. The Babylonians sold, leased, 
and mortgaged houses, loaned money at interest, 
worked land on shares, coined gold and silver at a 
fixed ratio of i to 13!^, and, according to Herodo- 
tus, " were the first to sell goods at retail." Da- 
mascus means " a seat of trade ;" Tyre was a great 
centre of commerce (Ezekiel xxvii.) and of colo- 
nization.* 

The ancient States were founded on slavery; 
Aristotle declared that " nature creates some men 
for liberty and others for slavery." In the " de- 
mocracy " of Athens three-fourths of the population 

* Blanqui's " History of Political Economy in Europe," writ- 
ten in French in 1837, and translated from the edition of 1842, is 
an informing study of ancient and mediaeval economic institutions 
and of later economic science, up to 1842, but not very systematic 
or satisfactory. Kautz's more comprehensive German history ( 1 860) 
is not translated. Professor Perry prefaces his larger " Political 
Economy " (i8th ed., 1883) with a useful general view of early eco- 
nomic methods and of schools of economists. On the literature of 
the subject, Cossa's " Guide to the Study of Political Economy," 
translated from the Italian (1880), is the best authority; an excel- 
lent popular summary, since 1500 and up to date, prefaces Professor 
Laughlin's abridgment (1884) of the " Principles of Political Econ- 
omy " of John Stuart Mill. See also the classified and annotated 
" Reader's Guide " of the Society for Political Education. 



HISTORY AND LITERATURE OF ECONOMICS. 24 1 

were non-voting slaves, who were the laborers and 
mechanics. The Greeks, accordingly, despised in- 
dustry and shopkeeping, and honored agriculture 
and commerce. The Athenians laid import duties 
of 2 per cent, at home, or 5 per cent, at the ports 
of subject-allies, but their revenue was chiefly from 
tributes, from confiscations, and from fines. Inter- 
est was left to take care of itself. They made 
public loans ; in time of peace they saved the rev- 
enues for war. Each citizen felt himself a share- 
holder in the State; a relentless public opinion 
punished public debtors and betrayers of trust. 
Athens broke down under luxury, slavery, dema- 
gogic truckling, public patronage, and commun- 
ism : her citizens, unused to work, began to rely 
on State aid, to banish rich men for the sake of 
the confiscations, and to clamor for distribution of 
public funds. 

Several Greek writers treated economic subjects, 
though they did not reach down to the recogni- 
tion of economic laws. Xenophon wrote a dia- 
logue called " The Economist," in which he speaks 
of Economics as a study by itself, and a tract on 
the revenues of Athens, proposing to increase 
them by encouraging immigration, honoring mer- 

16 



242 ECONOMICS FOR THE PEOPLE. 

chants, expediting commercial trials, and estab- 
lishing a Council of Peace. He had correct no- 
tions of wealth — " Wealth is only that which can 
be useful to us ;" and of the State he said, " One 
has very long arms when he has those of an entire 
people." Plato discusses money, trade, and the 
division of labor in his ideal " Republic." Aris- 
totle, the disciple of Plato and the teacher of Al- 
exander the Great, is the first great systematic 
writer on Economics, in his " Politics " (founded 
on his collection of the constitutions of 158 States), 
" Ethics," and " Chrematistics " (or science of prop- 
erty), the fourth book of which deals with political 
economy, '' the administration of free States " or 
cities. The book known as his " Economics " was, 
however, compiled in a later century. He found- 
ed his system on the Greek belief in slavery, but 
points out that " the middle-class is the surest ba- 
sis of a good social organization," and warns against 
social struggles in States which have " only poor 
and rich, that is, extremes and no means," in which 
the conqueror " takes good care not to establish a 
constitution on principles of equal rights, [but] re- 
gards the government as the prize of victory, [and] 
gives it the livery of his party." He thought " the 



HISTORY AND LITERATURE OF ECONOMICS. 343 

best nation is a nation of farmers," and despised 
mechanics and tradesmen ; but he points out that 
administrators are also wealth-producers and *'the 
very soul of the city." Property, he says, has two 
uses, one natural, the other artificial or industrial, 
as an object of exchange — almost the exact dis- 
tinction of Adam Smith between value in use and 
value in exchange. He shows also the true nature 
of money, *' an intermediary commodity designed 
to facilitate an exchange of two other commodi- 
ties." 

Rome began, probably, as a seat of trade for the 
Tiber valley, whose people were herdsmen and 
peasant proprietors working small farms. A hardy 
race, fit for war, the Romans soon turned from the 
arts of peace and founded a military State, based 
industrially on slavery, and enslaving conquered 
nations. War developed great administrative pow- 
ers, until at last the superb despotism of the em- 
pire came into being, and Rome, the city, sucked 
the life-blood of the provinces. The Romans 
praised agriculture, but preferred war ; they de- 
spised shops and ships, leaving commerce chiefly 
to conquered nations of sailors. Industry and 
commerce, said Cicero, " are to be regarded as dis- 



244 ECONOMICS FOR THE PEOPLE. 

graceful," though on a large scale "they must not 
be altogether condemned." Slaves, treated worse 
than beasts and contracted for in droves, did even 
such work as architecture and business manage- 
. ment ; though they were commonly overseen by 
" freedmen," who were attached to their slave- 
owning patrons as ** clients." Caste ruled the so- 
cial organization ; Augustus sentenced a senator 
to death for stooping to direct a workshop. Con- 
quered nations, like Carthage, furnished the com- 
merce of Rome. Money, contrary to the Greek 
doctrine, was considered the chief wealth, and its 
export was prohibited. Interest was accordingly 
high, discount reaching in known cases 70 per cent., 
while 12 per cent, was thought low. Revenue, 
reaching $200,000,000, came from import taxes — 
chiefly 2\ per cent, on luxuries, but varying in dif- 
ferent provinces — and export taxes; from a land- 
tax of a tithe of grain and a fifth of other agricult- 
ural products, and from the scriptura on pastures 
and public woods. A tax of five per cent, on mer- 
chandise at public sale, a like tax on inheritances, 
and other special taxes, as Caligula's on food, were 
laid in later days. These and the tribute-moneys 
of conquered nations, were farmed out to contract- 



HISTORY AND LITER A TURE OF ECONOMICS. 245 

ors, who collected them through slaves and freed- 
men. Great roads were built to the provinces, but 
for war and tribute, not for trade. Speculation, 
indeed, took the place of trade ; the rich became 
richer and the poor poorer. The citizens who did 
not like work had to be fed ; " these dogs," said 
one emperor, " cease to bark only when they have 
a full stomach." Laws were passed fixing the 
price of grain, granting five bushels each month to 
needy citizens, and scaling debts. Famines led 
to public granaries, the " sacred fleet " bringing to 
Rome the crops of Sicily and Egypt was a Gov- 
ernment project, and bounties were offered on 
importations of grain. The small farms at home 
could no longer compete ; creditors swallowed up 
these farms ; and their '■'■ broad-farms wrecked Ita- 
ly," says Plin>^ Thus Rome, defying economic 
laws, came to political suicide. 

In this state of things economic writers were 
not wanted : moralists, like Juvenal the satirist 
and Seneca the Stoic, set themselves in vain to 
stem the current of the times, and Cato and " the 
agriculturists " to bring their countrymen back to 
rural arts, but the economic literature of Rome is 
to be found chiefly in Cicero and Pliny, who con- 



246 ECONOMICS FOR THE PEOPLE. 

tributed little, however, to the progress of the sci- 
ence. In the Corpus juris, or body of the laws, and 
in the Institutes of Justinian, are to be found, nev- 
ertheless, many sound economic statements which 
are at the foundation of our own law, especially 
the recognition of rights and usufructs as proper- 
ty, under a legal distinction between corporeal and 
incorporeal things of value. 

Christianity brought into Economics a new force. 
In proclaiming the brotherhood of man, it doomed 
slavery and sowed the seed of an economic revo- 
lution. The early Christians freed their slaves, 
bought the liberty of slave - converts, and held 
wealth as a trust for their fellow-Christians. Yet 
little progress was made in Economics until the 
Dark Ages gave way to the Renascence. Aristo- 
tle was revived by the schoolmen, and theologians 
such as St. Thomas Aquinas discussed money and 
kindred themes. Feudalism and serfage bound 
men to lords and the land. The general drift of 
nations was in favor of " the mercantile system " 
of discouraging the export of money and the im- 
port of goods, so that " the balance of trade " might 
be favorable. France, from 1 300 on, was its spe- 
cial apostle. The Jews of the Middle Ages — sav- 



HISTORY AND LITERATURE OF ECONOMICS. 247 

ing, banking, trading, and lending — were the com- 
mercial missionaries of those times, but they were 
hounded as common prey throughout Christian 
nations. With the discovery of America, the in- 
vention of printing, and the Reformation, came also 
the dawn of economic freedom. The Italian cities 
and the Hanse towns of Germany, commercial 
and banking centres, developed commerce, and the 
German guilds, nourishing the industrial arts, pro- 
duced a race of burghers stout to resist and break 
away from the feudal despotism. One of the chief 
episodes of the Reformation was the controversy 
as to usury, in which Luther held to the Catholic 
theory that a loan was essentially gratuitous, while 
Calvin declared boldly for free interest and against 
usury laws. The theory of money was indeed the 
absorbing question of economic discussion up to 
modern times, but throughout this middle period 
the germs of the modern industrial development 
were quietly growing. 



XXIX. 

THE MODERN HISTORY AND LITERATURE OF 
ECONOMICS. 

Modern Economics may be said to have begun 
in France. Sully, the finance minister of Henry 
IV., developed on the mercantile system a general 
plan of administration, and two years after his re- 
tirement Montchretien published at Rouen, in 
1613, the first systematized general "Political 
Economy." Sully reduced taxation, to promote 
prosperity and increase revenue, and by this course 
paid off the national debt of $66,000,000 in a few 
years. He fostered agriculture, improved roads, 
dug canals, and provided means of transport. But 
he opposed manufacture, passed sumptuary laws, 
and discouraged trade with other nations. Colbert, 
the minister of Louis XIV., followed Sully in re- 
ducing and simplifying imposts, that the public 
treasury might prosper with private prosperity; 



MODERN HISTORY OF ECONOMICS. 249 

in reforming the public business, in promoting 
agriculture and internal transportation, and in as- 
suring security to trade. But he also glorified 
manufacture and commerce, and in his eagerness 
to serve the former devised the first protective 
tariff of 1667 and became the pioneer of the pro- 
tective system. The Paris merchants opposed his 
plan, pointing out that *' excessive taxes cause a 
loss on the whole of what is gained on the parts ;" 
that workmen cannot profit " without the help of 
foreigners, who furnish all the fine wools, for we 
have only coarse ones," as well as other raw ma- 
terials ; and that "foreigners will not fail to re- 
taliate," so that "our workmen will be without 
employment." The Dutch did retaliate ; war fol- 
lowed, agriculture suffered. After Colbert's death 
tax abuses again multiplied "till," said Vauban, " a 
tenth of France were beggared, five-tenths were 
scarcely better off, three-tenths were straitened ; 
of the remainder, a hundred thousand families, not 
ten thousand were at ease." 

At this time arose the first great school of econ- 
omists, the Physiocrats (so called because they be- 
lieved in natural laws), led by Quesnay, the surgeon 
of Louis XV., and by Gournay, a merchant. Ques- 



250 ECONOMICS FOR THE PEOPLE. 

nay, a great economic writer, considered liberty 
and property the cardinal points of natural law, 
and the cultivators of the soil as essentially the 
productive class. Gournay, the author of the 
phrase, '' Laissez faire, laissez passer^' which be- 
came the cry of the French merchants and after- 
wards the motto of a school, said that manufactures 
and commerce were also productive : both agreed 
on a single direct tax on land as the true source 
of revenue. Turgot accepted their theories, de- 
veloped them in his great work on " Riches,*' and 
applied them practically as minister of Louis XVI. 
He freed the trade in grain and gave full liberty 
to manufactures, but fell from power before put- 
ting the land-tax into operation, in 1776, in which 
year the centre of economic thought crossed to 
England. Later treatises, however, by Condillac, 
J. B. Say, Bastiat, the most luminous of all eco- 
nomic writers, particularly in distinguishing be- 
tween "• that which is seen and that which is not 
seen," Chevalier, Leon Say, and others, have kept 
up the line of French thought. The French Rev- 
olution, especially with its unhappy experiences as 
to paper-money, furnishes one of the most instruct- 
ive of all object-lessons in Economics. 



MODERN HISTORY OF ECONOMICS. 25 1 

The greatest of all economic writers is Adam 
Smith, whose ''Wealth of Nations'* was published 
in 1776, the year of the Declaration of Independ- 
ence. He gathered and co-ordinated all existing 
materials, reformed, added to, and applied the 
science. Sir Walter Raleigh and others, in the six- 
teenth century, Locke, Hobbes, Sir Joshua Child, 
and others, in the seventeenth, and in the early part 
of the eighteenth the idealist Berkeley, Francis 
Hutchison, who preceded Adam Smith in the 
Glasgow chair of Moral Philosophy, and others, 
had contributed to English economic literature, 
but Adam Smith included and superseded their 
work. He " stands in the centre of economic his- 
tory ;" whatever was written before was the prep- 
aration for, and after, the complement of his work, 
says Roscher. The "Wealth of Nations" recog- 
nizes the productiveness of all forms of industry ; 
it expresses the natural or industrial system found- 
ed on labor. It discriminates between value in 
use and value in exchange, emphasizes the division 
of labor, and advocates liberty as the key to pros- 
perity. After inducing principles from the facts 
of history, it deductively applies these principles 
to government and business, assigning to the State 



252 ECONOMICS FOR THE PEOPLE. 

limited functions as to education, public works, etc. 
Next to Adam Smith, Malthus, writing on " Pop- 
ulation," and showing its natural increase in geo- 
metrical proportion ; and Ricardo, the author of 
a general " Political Economy," but known chiefly 
by his doctrine of Rent, which shows that rent is 
not a factor in price, are the great English econo- 
mists of the last century. 

Their chief disciple was John Stuart Mill (the 
son of James Mill, also an economic writer), whose 
"Principles of Political Economy" is, next to the 
"Wealth of Nations," the greatest of economic 
works. This comprehensive treatise is, indeed, 
the chief modern authority in Economics. "It 
accords, in the main, with the doctrines of Smith, 
Malthus, and Ricardo, but these are amplified, cor- 
rected, and enriched by Mill's separate investiga- 
tions." His work is particularly valuable for its 
application of principles to practical social ques- 
tions, as wages and the condition of working-men. 

Tooke, who wrote the " History of Prices ;" Lord 
Overstone, the chief advocate of the currency prin- 
ciple adopted in the Bank Act of 1844; McCul- 
loch, author of the "Dictionary of Commerce" 
and of a bibliography of Economics ; Archbishop 



MODERN HISTORY OF ECONOMICS. 253 

Whately, who wrote an elementary treatise ; and 
N. W. Senior, who analyzed cost of production and 
developed the now exploded wage -fund theory, 
were all important writers of the same genera- 
tion. The group of men, headed by Richard Cob- 
den and John Bright, disciples of Adam Smith, 
who, joined by Sir Robert Peel, in 1846 repealed 
the corn -laws, accomplished one of the great- 
est practical triumphs that economic study has 
wrought ; from this movement came the " Man- 
chester school " of a priori or " orthodox " econo- 
mists, who emphasized general principles and car- 
ried the doctrine of laissez faire to an extreme 
which has caused some reaction. 

Of later English writers, now writing or who 
have but recently ceased their work, the more 
prominent are Herbert Spencer, whose great sys- 
tem of philosophy supports the extreme laisses 
faire doctrine in Economics ; Thornton, whose 
book " On Labor " caused Mill to abandon the 
wage-fund doctrine; Cairnes, who has newly ex- 
amined the ** Leading Principles of Political Econ- 
omy " and applied " The Logical Method " with 
brilliant results; Jevons, who applied mathemat- 
ical treatment in his *' Theory of Political Econo- 



254 ECONOMICS FOR THE PEOPLE, 

my/' wrote a useful " Primer " and a valuable study 
of " Money and the Mechanism of Exchange ;" 
Cliffe-Leslie, a representative of the German his- 
torical school, and a determined opponent of the 
Manchester economists ; Thorold Rogers, with his 
informing " History of Agriculture and Prices," 
and one of" Work and Wages " in England ; Bage- 
hot, editor of The Economist, and a clear writer on 
banking and other economic topics ; Professor 
Fawcett and his wife, with their "Manual" and 
" Political Economy for Beginners ;" and Mr. and 
Mrs. Marshall, with their popular presentation of 
" The Economics of Industry." The vagaries of 
John Ruskin, the art -writer, do not prevent his 
"Crown of Wild Olive," "Unto this Last," and 
other semi -economic writings from becoming 
sources of inspiration to those who study Eco- 
nomics as a means of bettering the condition of 
men. 

The tendency among later English writers to 
rebel from the extreme a priori school, which em- 
phasizes general principles, has been still more evi- 
dent in Germany, which is now the most active 
centre of economic thought. The " orthodox " 
economists found vigorous coworkers in Rau, 



MODERN HISTORY OF ECONOMICS. 255 

Hermann, Prince-Smith, and others, but the newer 
" historical " or " national " school, which holds that 
economic science must be founded on historical 
experience and the collection of facts, has enrolled 
such writers as Roscher, author of one of the great 
modern treatises, Hildebrand, and Knies. List, 
who wrote a *' National System of Political Econ- 
omy," was notably an advocate of protection, pre- 
ceding the American Carey. The school of the 
professorial socialists (socialists of the chair), Wag- 
ner, Engel, and others, who advocate State indus- 
try, has already been mentioned as the philosoph- 
ical authority for Bismarck's semi-socialist political 
poHcy of protection, State insurance, and the like. 
Italy has produced also a long line of brilliant eco- 
nomic scholars and writers, but the political posi- 
tion of Italy up to recent years has prevented 
them from being known, except to special stu- 
dents of the science. 

The independence of the United States grew 
out of " taxation without representation," and eco- 
nomic questions have played a large part in our 
history. In fact, during the period 1816 to 1844, 
the lines between political parties were drawn al- 
most entirely upon questions of trade and finance, 



256 ECONOMICS FOR THE PEOPLE. 

and since the restoration of the Union economic 
issues are again becoming paramount. The pro- 
tective policy, initiated by Hamilton with an aver- 
age tariff of Z\ per cent., but opposed by Gallatin, 
has held sway, despite two revenue-tariff periods, 
to the present, with its tariff averaging 46 per cent., 
notwithstanding the freedom of commerce among 
the States. It has found its ablest modern advo- 
cate in H. C. Carey, the most famed of American 
economists, also notable for his doctrine of increas- 
ing production of land, in opposition to Malthus's 
theory of diminishing returns. American econo- 
mists have consequently grouped themselves for 
the most part on one side or the other of this pol- 
icy. The most notable general treatises are those 
of Professor Perry, whose interesting volume has 
met with wide sale; of F. A. Walker, an able 
writer also on " Money " and " Wages ;*' and Simon 
Newcomb, who adopts the mathematical method. 
These are free-traders. Other special writers on 
this side are D. A. Wells and W. G. Sumner (in 
his "History of Protection"). Horace Greeley, 
R. E. Thompson, and E. H. Roberts (on " Govern- 
ment Revenue ") write as protectionists. 

A school of younger men, dealing largely with 



MODERN HISTORY OF ECONOMICS. 257 

facts on the German method, includes R. T. Ely 
(on " Socialism "), F. W. Tausig (on the " History 
of the Tariff"), and J. L. Laughlin (on the "His- 
tory of Bi-metallism "). Henry George, giving 
new color to old doctrines in his '' Progress and 
Poverty," which deals with the land question and 
urges its taxation to the full extent of rent, is 
the most widely read economic writer of the pres- 
ent day. The early political controversies on the 
National Bank, the slavery question culminating 
in civil war, the greenback issue, and now the sil- 
ver and tariff questions, suggest how closely the 
American voter is concerned in Economics, and 
how necessary it is that every American should 
carefully study its principles for himself. 

17 



XXX. 

"the end of the whole matter." 

The end of Economics is Wealth. But Wealth 
is not an end in itself ; it is a means towards life. 
" Humanity," said Kant, " is always to be treated 
as an end, never as a means merely." To make 
Wealth the end of life, to reduce man to a mere 
wealth-creating machine, is a crime against human- 
ity. It is the suicide of society — the same suicide 
which the miser commits when he paralyzes his 
body and starves his soul in his delirium for gold. 
The use of the commonwealth is to produce strong 
national life — the greatest abundance among men 
of healthy and happy individual life. " The Sab- 
bath was made for man ; and not man for the Sab- 
bath :" this is true also of wealth and of Econom- 
ics. The economic law is subject to the higher 
law, and Economics, as an art, is a means of state- 
craft and is reviewable by Ethics. " Morals," said 



''THE END OF THE WHOLE MATTERS 259 

a great French thinker, '' precedes and dominates 
political economy as it precedes and dominates 
politics and law." 

The study of the principles of Economics and 
of economic history reveals great natural laws, 
persistent in operation, relentless in punishing the 
transgressions of nations or of men, yet varied in 
application with the changes of circumstance. For 
a law is not less a law because its action is modi- 
fied or limited by other laws. The great force in 
Economics, the great motive of human activity, is 
found in the desire to get most with least labor, 
making the most of the gifts of nature by the proc- 
ess of exchange, to satisfy the ever increasing va- 
riety of human wants — applying labor to land to 
produce wealth, saving that wealth as capital to 
make labor easier, utilizing brains to the same end, 
and paying each its share according to the inevi- 
table law of supply and demand. This is the law 
of the part, of individualism, the centrifugal tend- 
ency of each atom to keep on its own way and 
*' look out for itself." But against this law of nat- 
ure is set over another, the law of the whole, of 
commonalty, the centripetal attraction which holds 
each atom to its path in the system of which it is 



26o ECONOMICS FOR THE PEOPLE. 

a part. The higher law of humanity, ethical in its 
nature, and of a scope beyond the individual life, 
modifies desire, limits the self -force, and creates 
new conditions of demand. Thus the direction of 
human endeavor is finally determined less by in- 
dividual self-interest in itself than by the common- 
sense of the community, voiced in public opinion, 
which defines to the individual what his self-inter- 
est is. In all ages of the world custom, whose 
modern name is Mrs. Grundy, has " laid down the 
law." There would be no misers in a community 
which did not value gold. 

The foundation of society and of each State is 
its industrial system. The ancient States, based 
industrially on slavery, regarded in their political 
economy the few and not the many. They were, 
as the mathematicians phrase it, in unstable equi- 
librium : the time of their fall came. Christianity, 
calling upon each man to be free, and to see in 
every other man a brother, gave to the State its 
possibilities of full development. But it required 
many generations for this seed to come to full 
fruit. The Dark Ages intervened, with their tran- 
sitional slavery, holding the serf slave to the soil. 
Then, with the circumnavigation of the world, the 



''THE END OF THE WHOLE MATTERS 26 1 

Copernican theory of the great universe, the dis- 
covery of the central law of gravitation, came the 
rounding out of humanity, the development of a 
new economic system, and the fulfilment of free- 
dom in free industrial competition, which is the 
foundation of modern society. Despite the wast- 
ing of nations by dynastic wars, and against en- 
deavors from all sides to restrict and thwart it, 
this principle of development has been holding it5 
own and making its way ; we now recognize the 
protection of individual liberty as the central idea 
of the State. But we begin to see also that it is 
not the sole law. With the idea of individual free- 
dom is involved the idea of personal responsibility. 
The freeman is a part of the State. The individ- 
ual good must be a part of the general good. In- 
dependence involves interdependence. The chain 
is only as strong as its separate links. Even in the 
strictest economic sense, each man's prosperity is 
bound up in the prosperity of all. 

The ideal State, towards which modern society 
is more and more conforming, thus resides neither 
in the brutal selfishness that leaves " every man to 
himself, and the devil take the hindmost," nor in 
the paternal socialism which by restricting individ- 



262 ECONOMICS FOR THE PEOPLE. 

ual development would destroy the motive-power 
of progress. It is a " happy mean " of practical 
limitations. The modern industrial organization, 
on which the State rests, is a vast complexity of 
individuals, worked out through the principle of 
freedom under existing institutions and laws. This 
machinery is for the most part automatic, and takes 
care of itself; interference is disastrous. But like 
every complex mechanism, it requires precautions 
against friction, replacements, and readjustments. 
A product of mind acting in line with nature, it 
must be ordered by mind acting in line with nat- 
ure. When the social machinery grinds out injus- 
tice, abuses men, makes the rich richer and the 
poor poorer, the community practically will not 
accept the extreme laissez faire theory ; it will not 
let ill enough alone, but will apply factory acts to 
right wrongs. The evils that society has done, so- 
ciety must undo. On the other hand, the common 
sense also rejects not only the impossible commun- 
ism which would reduce the industrious and the 
idle to a common level, but also the socialism which 
would put the greater portion of the social work 
under control of the State, instead of leaving it to 
individuals. Between the two lies the actual work- 



^'THE END OF THE WHOLE MATTER:' 263 

ing social system, varying among different peoples 
and at different times, but persistently in accord 
with the underlying economic laws, and never for 
any considerable time, in any stable State, against 
them. This is controlled always by public opin- 
ion, the aggregate of individual intelligences, in its 
turn directed by education and by the mastery of 
leadership. And thus the promotion of economic 
progress resolves itself into the work of political 
education. 

The history of nations shows a continuous move- 
ment forward, checked at times by tides of reac- 
tion, and crossed here and there by eddies of loss. 
For progress involves change, and change waste, 
and waste loss. By such loss we gain. The old 
machine is only old iron, but the new more than 
makes up the loss. Yet when it is a human ma- 
chine, with wife and children also to be fed, which 
is for the time put aside by new labor-saving ma- 
chinery or superior skill, no philosophy can miti- 
gate the hardness of life to that man. He is face 
to face with the relentless facts of that natural but 
necessary order which destroys one farmer's crops 
by the storm which saves another's, and accepts 
no ransom to stay Death from the rich man's 



264 ECONOMICS FOR THE PEOPLE. 

child. Socialism would be but a disastrous reme- 
dy; his help is in the providence that compels 
thrift and saving, in the mutual helpfulness of such 
benefit associations as the trades-unions, and in an 
increasing care by employers for the interests of 
labor. Soon the balance is restored. The men 
thrown out of work are usually the least skilled ; 
product being increased, those who are left get a 
part of the benefit in higher wages. In 1804 the 
weavers of Lyons mobbed Jacquard, because he 
had invented a labor-saving loom; but soon it 
gave employment to thousands more ; now they 
see that he has been their greatest benefactor. 
There were riots against the spinning-jenny, but 
now every man can have two shirts who before 
had one or none. Presently the discharged men 
adapt themselves to new employment, the increase 
of demand gives them new work, and the increase 
of product makes them better off. Progress is 
justified by its results. 

The purpose of modern States is " the greatest 
good of the greatest number;" statesmen there- 
fore concern themselves largely with the condition 
of **the working-classes," who are the great body 
of the people. The laborer, however, complains 



''THE END OF THE WHOLE MATTERS 265 

that in these modern days, with all sorts of labor- 
saving machinery, he neither is better paid nor can 
live better nor can take leisure ; while the rich are 
getting richer, the poor are getting poorer. This 
is partly true and partly not true. Absolutely, the 
laborer is better off than a generation or a century 
ago ; the facts show that he is better paid, better 
housed, clothed, and fed, even at the worst, and 
works fewer hours. But with this advance his de- 
sires have increased in even greater proportion ; 
he sees the luxury of the rich, and feels, relatively, 
worse off than he ought to be. Labor, in fact, has 
not profited by civilization as it should have done. 
The reason is found chiefly in false economic sys- 
tems and bad legislation. While legislation cannot 
increase product, but can only divert work from 
one channel to another, it can decrease productiv- 
ity ; it is easier to break down than to build up, as 
a fire destroys in an hour the work of years. 

There are three ways of increasing present pros- 
perity — by discounting the future and leaving 
other generations to pay our debts ; by increasing 
product, which is accomplished by bettering our 
industrial organization ; or by better distribution, 
which depends largely on the social control. The 



266 ECONOMICS FOR THE PEOPLE. 

statesman's care must ever be to promote the nat- 
ural means of the general distribution of wealth by- 
levelling up the body of the people. The possibil- 
ities of Life given by Wealth to a nation depend, 
indeed, not merely upon its amount, but largely 
upon its distribution among classes. A State in 
which Croesus with his millions dominates millions 
of penniless poor has little national life and even 
less economic force. It is not the cost of Croesus 
to the community in what he consumes that makes 
the difference, for, as Mr. Astor once said, he can 
himself utilize " only a fair salary for taking care 
of his own fortune," and his consumption is only 
his food, his clothes, the value of what he wears 
out. It is the enormous power of directing in- 
dustry and the distribution of product in one di- 
rection rather than another that gives him his in- 
fluence on the common welfare. It is only the 
abuse of riches that is a Juggernaut, crushing la- 
bor ; capital, well used, is its best helper. " There 
are busy rich and idle poor," says Ruskin, in show- 
ing that neither class is in itself virtuous or vicious. 
So, too, there are good fortunes and bad fortunes. 
Of the three great fortunes of this country, the 
Vanderbilt fortune had its origin in real serv- 



**THE END OF THE WHOLE MATTERP 267 

ice. Commodore Vanderbilt's development of 
the through-line railroad system now brings a bar- 
rel of flour from Chicago to the Atlantic at a cost 
reduced from two dollars to sixty cents, and his 
returns were but a part of the savings to the com- 
munity. On the other hand, the Astor fortune, 
though begun by trading, came chiefly from the 
rise of land in New York City by " unearned incre- 
ment ;" and the Gould fortune is the result of 
" speculation," without service to the community. 
The exorbitant fortunes of recent years have come 
chiefly from two sources : the unearned increment 
of land "held for the rise," and gambling in corpo- 
rate franchises granted by the people ; while the 
poor have been made poorer by a vicious tax sys- 
tem which, in its roundabout and concealed way, 
took from the poor man much more in proportion 
than from the rich. It is inevitable, therefore, that 
legislation in the future must look to the interests 
of the many rather than the few ; and still more, 
that public opinion, stronger than law, will hold 
each man to responsibility in proportion to his 
power. 

There is nothing more dangerous, however, in a 
Government of and by and for the people than a 



268 ECONOMICS FOR THE PEOPLE, 

mistaken notion that any nostrum will prove a cure 
for all ills, or that we can overcome altogether the 
relentless discipline of nature. Under the best sys- 
tem of government we cannot rid ourselves of its 
cost, and the even distribution of all wealth among 
our whole people would increase the earnings of 
each but a few cents a day. It is by re-forming 
our political, industrial, and social system step by 
step, -as opportunity presents itself, not by destruc- 
tive revolution, that each worker will get the most 
of life possible for him. Education, honest admin- 
istration, the prevention of waste, the bettering of 
the conditions of work, are the great means by 
which each man willing to work will get work, and 
with it a wage that will give him opportunity for 
leisure, and with that the power to use leisure in 
wholesome and happy life. 

It is the glory of our nation that we prepare not 
for War but for Work. Our two great wars — one 
of independence, one of emancipation — have both 
been waged that labor might be free. Without 
"foreign relations" involving the burden of great 
standing armies, we have a fair field, in peace, for 
the unrestricted prosperity of labor. As a wider 
and wiser education, developed into controlling 



''THE END OF THE WHOLE MATTER:' 269 

force through public opinion, brings our national 
life more into line with natural law, as we apply 
in practice the great sanctions alike of Ethics and 
Economics, that virtue produces wealth and " right- 
eousness exalteth a nation," our democracy will 
increase from strength to strength. " In propor- 
tion," said Channing, " as Christianity shall spread 
the spirit of brotherhood, there will and must be 
a more equal distribution of toil and means of im- 
provement." To that end every American is a 
Trustee for the Future. 



A READING LIST OF BOOKS ON ECONOMICS. 

The reader who desires to pursue courses or fol- 
low up special topics is referred to the following : 

General Works^ Primary : Jevon's " Primer," Mrs. Faw- 
cett's " Political Economy for Beginners," Perry's 
smaller " Introduction to Political Economy." 

Middle: Perry's "Elements of Political Econo- 
my," Sturtevant's " Economics," Steele's " Outline 
Study," Ely's " Political Economy," Walker's " Po^ 
litical Economy," Andrews's " Institutes." 

Standard: Smith's " Wealth of Nations," Mill's 

" Principles of Political Economy" (also in abridged 
edition by Laughlin), Carey's " Social Science" (also 
in abridged edition by Kate McLean), F. A. Walk- 
er's " Political Economy," Simon Newcomb's " Po- 
litical Economy." 

History^ Literature^ and Method: Blanqui's " History of 
Political Economy in Europe," Cossa's " Guide to 
the Study of Political Economy," Laughlin's " Study 
of Political Economy." See also Perry's " Elements," 
and Laughlin's edition of Mill. 

Reference Works : McCulloch's " Dictionary of Com- 
merce," Lalor's " Cyclopaedia of Political Science 
and Political Economy," the " Encyclopaedia Britan- 
nica," and other general cyclopaedias. 



2/2 BOOKS ON ECONOMICS. 

Statistics: " Statesmen's Year-Book," for all countries; 
the "Financial Reform Almanac," "Whitaker's Al- 
manac," the Statistical Abstract, and other Govern- 
ment " Blue-books " for Great Britain \ the United 
States Census, Scribner's " Statistical Atlas," based 
on it, Spofford's "American Almanac," the Gov- 
ernment Public Documents, particularly those of 
the Treasury Department, and the Reports of the 
Bureaus of Statistics of Massachusetts, New Jersey, 
and other States, for America. 

Money and Banking: Jevon's " Money and the Mechan- 
ism of Exchange," Bagehot's "Lombard Street" 
(the English banking centre), Bolles's "Financial 
History of the United States," Sumner's " History 
of American Currency," Laughlin's " History of Bi- 
metallism," Linderman's "Money and Legal-ten- 
der," Horton's "Gold and Silver," F. A. Walker's 
"Money," and his smaller "Money, Trade, and 
Industry," Wells's "Robinson Crusoe's Money," 
Green's "Repudiation." As elementary works, 
McAdam's "Alphabet in Finance," Newcomb's 
"ABC of Finance." 

Taxation and Revenue: Wells's special Reports and 
Report of New York State Commissioners, Can- 
field's "Taxation." 

Tariff: Young's special Report on " Customs - Tariff 
Legislation of United States," Taussig's " History 
of the Present Tariff," Heyl's " United States Im- 
post Duties " (official tariff). 

For Free -trade: Bastiat's "Sophisms of Protec- 
tion," Wells's " Primer of Tariff Reform," Sumner's 



BOOKS ON ECONOMICS. 273 

"History of Protection," Taussig's "Protection to 
Young Industries," Grosvenor's " Does Protection 
Protect ?" Trumbull's " History of the Free - trade 
Struggle in England," Schoenhof's " Our Industrial 
Situation," Henry George's " Protection or Free- 
trade ?" Bowker's "Economic Fact -book," and 
publications of the New York Reform Club, 52 
William Street, New York. 

For Protection : Stebbins's " American Protection- 
ists' Manual," Mason's " Short Tariff History," 
Roberts's " Government Revenue," Hoyt's " Pro- 
tection vs. Free-trade," Thompson's "Lectures," 
Carey's writings, and publications of the American 
Protective Tariff League, 23 West 23d Street, N. Y. 

Land and Rent: F. A. Walker's " Land and its Rent," 
Henry George's " Progress and Poverty," Cox's 
"Free Land and Free Tradt/' 

Labor, Wages, etc.: Thornton "On Labor," Thorold 
Rogers's "Work and Wages," Brassey's "Work 
and Wages," Atkinson's " Distribution of Prod- 
uct," Porter's " Bread-winners Abroad," Weeks's 
"Labor Differences and their Settlement" (arbi- 
tration). 

Co-operation : Holyoake's " History of Co-operation," 
Acland and Jones's " Working-men as Co-opera- 
tors," Barnard's " Co-operation as a Business," 
Gladden's " Working-men and their Employers." 

Commnnism and Socialism : Ely's " French and German 
Socialism," Woolsey's " Communism and Social- 
ism," Mill's " Socialism," Sumner's " What Social 
Classes Owe to Each Other" (contra). 
18 



INDEX 



Agriculture, 8. 
American economists, 256. 
Americans, 155. 
Anarchism, 207. 
Apprenticeship, 64. 
Arable land, 134. 
Arbitration, 191. 

Durham coal, 194. 

Pittsburg system, 194. 

Aristotle, 242. 

Artists, service of, 10. 

AssignaiSy 100. 

Astor, W.B.,266. 

Athenians, import duties of, 241. 

Athens, Solon's laws, 144. 

Atkinson, Edward, 142, 181, 232, 234. 

Bad times, 97. 
Balance of trade, 68, 73, 
Bank Act of 1884, i ii 

money, 99. 

of Amsterdam, 110, 

of England notes, loi, 1 11, 115. 

of France, 102. 

of issue, III. 

Bankers, 11, 33, ixg. 

Banking principle, 112. 

Bankrupt, 108. 

Banks and banking, 107, 114. 

Barter, 2. 

Bastiat, Frederic, 67, 250. 

Ei-metalists, 85. 

Boycott, 190. 



Brains, 23, 117, 177, i8o. 

Brassey, Sir T,, 168. 

Brickmakers, 171. 

Brokers, 11. 

Brotherhood of Locomotive Engineers, 

187. 
Bullion system, 67. 
Business, 2, 4. 

Capital, 22, 107, 112, 117, 139, 185. 

Carey, H. C, 255, 256. 

Carpenters, 170. 

Census, 8, 127. 

Change, silver and nickel, 93. 

Cheap money, 104. 

Checks, 108. 

Chinese, 155. 

Christian Socialists, 211, 

Christianity, 18, 246, 260. 

Circulation, Roman, 86. 

Coal-mining, 160. 

Cobden, Richard, 17. 

Code Napoleon, 120. 

Coinage, 83. 

system, 58. 

Coins, 92. 

Colbert, J. B., 18, 248. 
Collateral, 108. 
Commercial theory, 75. 
Common measure of value, 78. 
Commonwealth, 4. 
Communism, 207. 
Competition, 59. 



2/6 



INDEX. 



Competitive examination, 60. 
Confidence, 100. 
Consumption, 26, 62, 229, 236. 
Convertible currency, 98, 99. 
Coolies, 168. 
Co-operation, 197. 

distributive societies, 198. 

productive, 200. 

Rochdale pioneers, 197, 211. 

Co-operative banking, 204. 

Building and Loan Association, 

204. 

enterprises, 25. 

stores, 205. 

Copper, 81. 
Corn rents, 89. 
Cost of production, 44. 
Cotton-gin, 158. 

operatives, 171. 

Counterfeiting, 90. 
Credit, 78, 108. 

money, 100, 105. 

Criminals, 10, 64. 
Currency, 41, 80, 98. 

principle, 112. 

Custom, 57. 

Dark Ages, 260. 
Debased coins, 1 10. 

money, 96. 

Debt, 100. 

De Lamennais, H. F. R., 211. 
Demand, 43. 
Director, 71, 177. 
Discount, 108. 
Distribution, 26, 62, 117. 
Diversifying industries, 69. 
Division of labor, 154. 
Doctors, 9, 33, 65. 
Dollar, 41, 91. 
Domestic servants, 9. 
Double standard, 86. 
Draft, 109. 

Earning a living, 7. 



Economic issues, 256. 
Economics, definitions, 3 ; derivation, 4 ; 
early history of, 239 ; modern history 
of, 248 ; not an exact science, 15 ; 
principles of, 259. 
Education, 13, 268. 
Employer and employed, 184. 
Engel, Dr., 233. 
England, 114, 123, 133, 144. 
English coins, 83. 

economists, 17, .164. 

iron trade, 193. • 

school, 17. 

writers, 252-255. 

Entail, 121. 
Exchange, 4, 26, 77. 
Exchequer, 108. 
Exports, Great Britain, 74. 

United States, 74. 

Farm wages, 170. 

Farmer, 8, 15, 30, 33, 45, 65, 79, 104, 116, 

129, 154. 
Farming, 123, 169. 
Farms, 121. 
Fiat-money, 104, 106. 
Final utility, 49. 
Fire loss, 231. 
Fishermen, 8. 
Foreign exchange, 109. 

trade, 66, 68. 

France, 120, 123. 
Free coinage, 96. 

trade, 68. 

■- traders, 256. 

French economists, 1 7. 

Revolution, 208, 250. 

statesmen, 67. 

Friction, 57. 

Gamblers, 10, n. 
Gambling, 11. 

George, Henry, 136, 225, 257. 
German school, 18. 
Germany, 209, 212. 



INDEX. 



277 



Glass-workers, 171. 
Godin, J. B. A., 157, 200. 
Gold, 81, 82, 92. 

certificates, 98. 

Gould, Jay, 267. 

Gournay, 250. 

Government, 212, 214, 219, 227. 

officers, 9, 12. 

Gratuitous coinage, 95. 

Great Britain, 120. 

Greece, 144. 

Greeks, 241. 

Greenbacks, 93, lor, 103, 113. 

Gresham's law, 104. 

Hard times, 61, 182. 
Head-money, 71. 
Hell Gate, 153. 
Historical school, 255. 
History of nations, 263. 
Hops, 39. 

Ignorance, cost of, 13. 
Immigrants, 20. 
Immigration, 71. 
Imports, Great Britain, 74. 

United States, 74. 

Inconvertible currency, 99. 

Insurance, 146. 

Interest, 22, 108, 141, 143, 147. 

International trade, 65. 

Ireland, 133. 

Irish, 155. 

Jews, 143* 239, 247. 

Knights of Labor, i88. 

Labor, 117, 152, 159, 163, 181, 185, 265. 
Laborer, 9, 265. 
Labor- value, 105. 
" Laissez faire^^ 19, 262. 
Land, 22, 116, 128. 
question, 257. 

^ value, i?7. 



Lasalle, J. B. de, 210. 
Latin Union, 86. 
Lawyers, 10, 33. 
Legal-tender, 86, 92, lOO. 
Legendre, A. M., 18. 
Legislation, 173, 226. 
Leisure, 7, 12. 
Liquors, 232. 
Lock-outs, 188. 
Locomotive engineers, 187. 
Log-rolling, 73. 

Machinery, 60. 
Machinists, 33. 
Malthus, 123, 252. 
Manchester school, 17. 
Manufacturers, 8. 
Market, 55. 

price, 51, 52, 54. 

Markets, 52. 

Marx, Karl, 209. 

Material, 184. 

Mechanic, 65, 104. 

Medium of exchange, 77. 

Mercantile system, 67, 246. 

Merchant, 33, 65, 154. 

Middle Ages, 67, / 

men, 61. 

Mill, John Stuart, 52, 65, 137, 224, 252- 

Miners, 8. 

Mint, 84. 

Money, 41, 58, 76, 79, 102, 104. 

Mono-metalists, 85. 

Mortgaged, 36. 

Muhiple standard, 88, 89. 

Musicians, 10. 

Napoleon. See Code, 120. 
National banks, 112-114, 257, 

currency, 112. 

Labor Congress, 187. 

labor report, 183. 

school, 255. 

Natural selection, 60. 

system, 67. 



278 

Nihilism, 207. 
Normal price, 51, 54. 

OvKRSTONE, Lord, 112, 252. 
Owen, Robert, 1620 

Painters, 170. 

Panic, 99. 

Paper as money, 98. 

Paper-money, 35, 98, iii, 113. 

Paupers, 10, 232. 

Pecuniary, 79. 

Peel, 3'2> Robert, iii. 

Pennsylvania law, 192. 

Physiocrats, 249. 

Piece-wages, 160. 

Political economy, derivation^ <. 

Population, United States, 8. 

Post-office Department, 114. 

Potatoes, 45, 49. 

Potter, Humphrey, 152. 

Prices, 43, 72, 84, 87, 116. 

Primogeniture, 121. 

Producers, direct, 8, 33. 

indirect, 8, 10. 

Product, 21, 22, 163. 
Production, 25, 44, 62, 117, 154. 
Professorial Socialists, 211, 255, 
Profit, 23, 72, 177, 179. 
Protection, 68. 
Protective policy, 67. 

system, 67. 

tariif, 72. 

Protest, 109. 
Proudhon, 148. 

Railroad-men, 33. 
Railroads, 8, 9, 120. 
Realize, 99. 
Rent, 22, 118, 129. 
Reproduction, 54, 
Repudiation, 106. 
Reserve, 99. 
Retail buying, 52. 
Revenue, 72. 



INDEX. 



Ricardo, D., 96, loi, 252. 
Ricardo's law of rent, 47, 130, 134. 

law of seigniorage, loi. 

Rogers, Thorold, 172. 
Rome, 67, 144, 243. 

Safe deposit, i lo. 

Sailors, 8, 9, 33. 

Savings-banks, 114. 

Say, J. B., 67, 250. 

Scotch economists, 17. 

Seigniorage, 95. 

Self-interest, 30. 

Servant, 33. 

Service, 8. 

Shakers, 211. 

Share-wages, 160. 

Shekel, 82. 
Shoemaker, 77. 
Shoe manufacturer, 163. 
Silk industry, 69, 70. 
Silver, 41, 8i, 82, 92. 

certificates, 98. 

Single standard, 86. 

" Sliding scale " of payment, i6o. 

Smith, Adam, 17, 21, 30, 67, 103, 126, 166, 

177. 220, 251. 
Social Democracy, 209. 
Socialism, 207, 264. 
Socialists, Christian, 211. 

Professorial, 211. 

Soldiers, 9. 
Spanish treaty, 47. 
Specie, no. 

Specific industries, 156. 
Speculation, 10, 58. 
Spencer, Herbert, 137. 
Stamp-business, i. 
Standard of values, 78. 

silver dollar, 92. 

State banks, 114. 
Statistics, 234. 
I Stewart, A. T., 52. 

Stock, 55. 
I Storer of values, 78. 



INDEX. 



279 



Strikes, 188. 
Substitution, 57. 
Sugar, 38, 47. 
Supply, 43, 54. 
Suspend payment, 99. 

Tabular standard, 88. 
Tariff, 257. 

Tariff for revenue, 72. 
Taxation, 214, 220. 
Taxes, 218, 227. 

excise, 222. 

income, 223. 

legacy, 222. 

Teachers, 9. 
Time-wages, 168. 
Token money, 93. 
Tooke, Thomas, 1 12. 
Trade, 9, 169. 

dollar, 92, 97. 

foreign, 68. 

Traders, 9. 

Trades-unions, 63, i86. 

Transportation, 8. 

" Truck system " of payment, 160. 

Turgot, 250. 

Tweed Ring, 217. 

Ulster tenant-right, 133. 



Unearned increment, 125, 267. 
United States, area of, 127. 

coins, 83. 

money, 90. 

Usury laws, 144. 
Utility, 31. 

Value, 28, 31, 38. 
Vanderbilt, C, 266. 
Village communities, iig. 

Wages, 22, 159, 167, 170, 175, 184. 

Wall Street, u, 146. 

Wants, 29. 

War, 268. 

Wastes, 231. 

Watch-makers, 171. 

Water-power, 127. 

Wealth, 20, 36, 76, 80, 229, 258. 

Weather science, 15. 

Webster, Daniel, 106. 

Wheat, 38, 41, 55, 130. 

Women in economics, 5, 7, 12, ic 

Wool, 39, 40. 

— operatives, 171. 

Work, 22. 
Writers, 10. 

Xenophon, 241. 



THE END. 



H 12^ 81 "^ 







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